The Securities and Exchange Board of India (SEBI) has issued a significant regulatory update requiring asset management companies (AMCs) to rebalance portfolios for all passive breaches within 30 business days. This marks a notable shift from the previous focus, which applied only to passive breaches arising from asset-allocation deviations. The revision aims to protect investor interests by ensuring strict compliance across all types of breaches in actively managed mutual funds
Defining Passive Breaches
Passive breaches are regulatory limit violations triggered by market forces or external events—not by fund manager actions. Common scenarios include:
Corporate actions affecting holdings
Sharp price movements in underlying securities
Maturation of portfolio instruments
Large-scale redemptions.
These breaches, though unintended, may alter the fund’s risk profile if not corrected promptly.
Regulatory Shift & Timeline
Earlier Rule: Portfolio rebalancing within 30 business days was required only for asset-allocation breaches in active funds.
New Rule: The 30-day rebalancing rule now extends to all passive breaches across actively managed schemes—excluding index funds and ETFs
This change follows recommendations from SEBI’s Mutual Funds Advisory Committee (MFAC), emphasizing regulatory consistency and investor protection
Implications for AMCs & Investors
For AMCs:
Expand monitoring systems to capture diverse breach triggers.
Maintain robust governance to rebalance in a timely manner.
Adhere strictly to the 30-day clock to avoid compliance lapses.
For Investors:
Portfolios will better maintain intended risk-return profiles.
Increased transparency and discipline in fund management.
Assurance that unintentional drift due to market events is addressed proactively.
RURASH Financials’ Perspective
At RURASH Financials, this update aligns with our commitment to transparency and disciplined investment governance. Key considerations include:
Stricter Oversight: Active fund portfolios under our purview now possess enhanced monitoring for timely rebalancing.
Client Assurance: Policies ensure that unintended drifts do not erode financial plans.
Regulatory Edge: We maintain compliance readiness, allowing clients to focus on long-term wealth creation.
What Investors Should Do
Review Fund Communications: Check if AMCs have updated their compliance and portfolio-monitoring frameworks.
Discuss with Advisors: Understand your fund manager’s approach to detecting and correcting passive breaches.
Seek Assurance: Confirm rebalancing timelines are embedded within fund governance structures.
Final Thoughts
SEBI’s broadened rebalancing mandate underscores its investor-first ethos ensuring that deviations, even if unintentional, are rectified swiftly. For dynamically managed portfolios, this translates into greater risk control and enhanced compliance discipline. At RURASH Financials, our advisory services are structured to integrate these regulations into a seamlessly managed investment experience.
Need help understanding how this impacts your portfolio?
Connect with RURASH Financials for personalized guidance and proactive investment assurance.