Sebi limits passive mutual funds schemes investing in sponsor group companies

Passive mutual funds will now have investment limits on the shares of the sponsor group companies, according to new rules notified on Monday by the Securities and Exchange Board of India. Equity-oriented exchange-traded funds and index fund investments in the sponsor group companies are capped at 35% of the scheme's net asset value. Mutual fund schemes excluding ETFs and index fund investments cannot invest more than 25% of their assets in sponsor group companies. Passive schemes which are not compliant with the rules must rebalance the portfolio within 30 business days from the date of issuance of the circular, Sebi wrote, adding that “The investment committee, if so desires, can extend the timeline for rebalancing up to 60 business days from the date of completion of mandated rebalancing period.” Sebi says that asset management companies will not be allowed to launch any new scheme till the time the portfolio is rebalanced, and not levy exit load on existing investors of such schemes, if the portfolio has to be rebalanced to comply with the new regulations.