SEBI lays down rules for 'active breach' in Specialized Investment Funds; 30-day window to rebalance or redemption

The mechanism for monitoring compliance with the minimum investment threshold has been designed based on the feedback received from industry participants, as per the SEBI circular.

The Securities and Exchange Board of India (SEBI) has said that any 'active breach' by an investor in a Specialized Investment Fund (SIF) will lead to the units of the investor getting frozen and will even be automatically redeemed if the investments are not rebalanced within 30 calendar days.

An 'active breach' refers to a scenario wherein the aggregate value of an investor’s total investment across all investment strategies of SIFs falls below the minimum investment threshold of Rs 10 lakh, on account of any transactions — redemption, transfer, sale etc. — initiated by the investor.

“The Asset Management Company shall monitor compliance with the Minimum Investment Threshold on a daily basis and ensure that there are no active breaches. The AMC shall ensure that the investor’s total investment value does not fall below the Minimum Investment Threshold due to redemption transactions initiated by the investor," stated a circular issued by SEBI on Tuesday.

More importantly, the capital market regulator said that any active breach of the minimum investment threshold by an investor, including through transactions on stock exchanges or off-market transfers, would lead to all the units of the investor being frozen for debit.

Further, a notice of 30 calendar days will be given to the investor to rebalance the investments in order to comply with the minimum investment threshold.

In case the investor rebalances the investments within the notice period of 30 calendar days, the units of SIF will be unfrozen, and no further action will be taken, as per the SEBI circular.

However, in case the investor fails to rebalance the investments within the 30 calendar day period, the frozen units will be automatically redeemed by the AMC, at the applicable net asset value of the next immediate business day after the 30th calendar day of the notice period.

Incidentally, the mechanism for monitoring compliance with the minimum investment threshold has been designed based on the feedback received from industry participants, as per the SEBI circular.

The rules will come into force with immediate effect.