SEBI Expands Rebalancing Rules for Active Mutual Fund Schemes

  • Blog|News|Company Law|
  • 2 Min Read
  • By Taxmann
  • |
  • Last Updated on 29 June, 2025

Latest from Taxmann

SEBI portfolio rebalancing norms

Circular No. SEBI/HO/IMD/PoD2/P/CIR/2025/92, Dated: 26.06.2025

The Securities and Exchange Board of India (SEBI), through a clarification, has extended the applicability of portfolio rebalancing provisions under Paragraph 2.9 of the Master Circular for Mutual Funds to cover all types of passive breaches in actively managed mutual fund schemes.

1. Background – Timelines for Portfolio Rebalancing

As per Paragraph 2.9 of the SEBI Master Circular for Mutual Funds, mutual fund schemes are required to rebalance their portfolios within a specified timeline if there is a deviation from the mandated asset allocation stated in the Scheme Information Document (SID).

These deviations typically arise due to passive breaches—instances where changes in asset allocation occur not due to active trading decisions but due to external factors such as:

  • Market movement
  • Inflows or outflows
  • Rating changes
  • Index rebalancing

2. Clarification Issued by SEBI

SEBI has now clarified that the rebalancing provisions shall be applicable to all types of passive breaches, not just select instances.

This clarification is specifically directed at actively managed mutual fund schemes, ensuring that:

  • Any passive deviation from the SID-mandated asset allocation must be corrected within the prescribed timeline.
  • Fund managers maintain consistency and discipline in adhering to the stated investment strategy.

3. Implications for Mutual Fund Industry

This move is aimed at:

  • Strengthening investor protection by maintaining alignment with the disclosed investment strategy
  • Reducing tracking error risks in actively managed portfolios
  • Promoting transparency and accountability in portfolio management

4. Key Takeaway

All passive breaches, irrespective of their cause, will now require timely rebalancing in actively managed mutual fund schemes. Mutual funds are expected to review their monitoring mechanisms to ensure compliance with this clarified regulatory expectation.

Click Here To Read The Full Circular

Disclaimer: The content/information published on the website is only for general information of the user and shall not be construed as legal advice. While the Taxmann has exercised reasonable efforts to ensure the veracity of information/content published, Taxmann shall be under no liability in any manner whatsoever for incorrect information, if any.

Taxmann Publications has a dedicated in-house Research & Editorial Team. This team consists of a team of Chartered Accountants, Company Secretaries, and Lawyers. This team works under the guidance and supervision of editor-in-chief Mr Rakesh Bhargava.

The Research and Editorial Team is responsible for developing reliable and accurate content for the readers. The team follows the six-sigma approach to achieve the benchmark of zero error in its publications and research platforms. The team ensures that the following publication guidelines are thoroughly followed while developing the content:

  • The statutory material is obtained only from the authorized and reliable sources
  • All the latest developments in the judicial and legislative fields are covered
  • Prepare the analytical write-ups on current, controversial, and important issues to help the readers to understand the concept and its implications
  • Every content published by Taxmann is complete, accurate and lucid
  • All evidence-based statements are supported with proper reference to Section, Circular No., Notification No. or citations
  • The golden rules of grammar, style and consistency are thoroughly followed
  • Font and size that’s easy to read and remain consistent across all imprint and digital publications are applied

Leave a Reply

Your email address will not be published. Required fields are marked *

«
»

Everything on Tax and Corporate Laws of India

To subscribe to our weekly newsletter please log in/register on Taxmann.com

Author: Taxmann

Taxmann Publications has a dedicated in-house Research & Editorial Team. This team consists of a team of Chartered Accountants, Company Secretaries, and Lawyers. This team works under the guidance and supervision of editor-in-chief Mr Rakesh Bhargava.

The Research and Editorial Team is responsible for developing reliable and accurate content for the readers. The team follows the six-sigma approach to achieve the benchmark of zero error in its publications and research platforms. The team ensures that the following publication guidelines are thoroughly followed while developing the content:

  • The statutory material is obtained only from the authorized and reliable sources
  • All the latest developments in the judicial and legislative fields are covered
  • Prepare the analytical write-ups on current, controversial, and important issues to help the readers to understand the concept and its implications
  • Every content published by Taxmann is complete, accurate and lucid
  • All evidence-based statements are supported with proper reference to Section, Circular No., Notification No. or citations
  • The golden rules of grammar, style and consistency are thoroughly followed
  • Font and size that's easy to read and remain consistent across all imprint and digital publications are applied