In a circular addressed to mutual funds, asset management companies (AMCs), and trustees, SEBI said that the rebalancing rules mentioned in paragraph 2.9 of its Master Circular will now apply to all passive breaches in actively managed mutual fund schemes.
A passive breach refers to a situation where a scheme’s investment goes outside its allowed limits due to events like corporate actions, price fluctuations in securities, maturity of underlying assets, or large redemptions. These breaches are not due to mistakes or violations by fund managers.
SEBI said: “The provisions prescribed under paragraph 2.9 of the Master Circular shall be applicable for all types of passive breaches for the actively managed mutual fund schemes.”
While active breaches are treated as regulatory violations, passive ones still need to be corrected within the given timeframe to ensure investor protection.
The clarification follows recommendations from SEBI’s Mutual Funds Advisory Committee (MFAC) and aims to bring more consistency to how all breaches — whether active or passive – are handled.
The circular was issued under Section 11(1) of the SEBI Act, 1992 and Regulation 77 of the SEBI (Mutual Funds) Regulations, 1996.