Markets regulator Securities Exchange Board of India
(SEBI) on Wednesday announced timelines for the rebalancing of portfolios of
mutual fund schemes to bring uniformity.

SEBI issued a circular that said the rebalancing period
would be applicable in the case of deviation from mandated asset allocation mentioned
in the Scheme Information Document (SID) due to passive breaches.

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Generally, passive breaches are not arisen due to
omission and commission of Asset Management Companies (AMCs). Rebalancing of
all mutual fund schemes, except Index Funds and Exchange Traded Funds (ETFs),
must be done within 30 business days.

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In case, the rebalancing is not done within the required
timelines, justification in writing, including details of efforts taken to
rebalance the portfolio must be presented to the concerned investment
committee. The committee can extend the timelines up to 60 business days from
the date of completion of the mandated rebalancing period. SEBI states that
AMCs will not be allowed to launch new schemes until the portfolio is
rebalanced within the extended timelines.

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Furthermore, they would be prohibited from levying exit
loads on investors who leave such schemes. At each stage, AMCs are required to
report deviations to the trustees concerned.

SEBI said if the AUM of the deviated portfolio is more
than 10% of the AUM of the main portfolio of the scheme then AMCs have to
immediately inform about the same to the investors through SMS and
e-mail/letter, including details of the portfolio not rebalanced. “AMCs
shall also have to immediately communicate to investors through SMS and
email/letter when the portfolio is rebalanced,” the regulator said.

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The norms would apply to the main portfolio only and not
to segregated portfolios if any. They would come into effect from July 1, 2022.