Sebi tightens rule for 'passive breaches' by MFs, effective July 1

Provision for barring fund houses from launching new schemes, charging exit load

The Securities and Exchange Board of India (Sebi) has tightened rules around rectification and reporting of ‘passive breaches’ by mutual fund (MF) schemes. A passive breach is when a scheme’s asset allocation inadvertently deviates from that mentioned in its scheme information document (SID). This could happen because of large-scale redemptions or sharp fall in the price of security where the scheme has a large exposure.

In a circular, Sebi has said all MF schemes, other than index funds and exchange traded funds, will be given 30 days to rectify any passive breaches. If it fails to do so, the fund