Description

SEBI clarifies monitoring mechanism for minimum investment threshold compliance in Specialized Investment Funds with automatic remedial actions for breaches.

Summary

SEBI has issued clarifications on the monitoring mechanism for Minimum Investment Threshold compliance under Specialized Investment Funds (SIF). The circular establishes a systematic process for handling breaches, including unit freezing, 30-day rebalancing notice, and automatic redemption if non-compliance persists.

Key Points

  • AMCs must monitor SIF minimum investment threshold compliance daily
  • Active breach occurs when investor’s total investment falls below INR 10 lakh due to investor-initiated transactions
  • Breached units are frozen for debit across all investment strategies of the concerned SIF
  • 30 calendar days notice given to investors to rebalance investments
  • Automatic redemption at next business day NAV if rebalancing not done within notice period
  • Units unfrozen if investor successfully rebalances within 30 days

Regulatory Changes

  • Defines “Active Breach” as fall below INR 10 lakh threshold due to investor-initiated transactions (redemption, transfer, sale)
  • Establishes unit freezing mechanism for non-compliant investors
  • Introduces 30-day cure period with automatic redemption as final enforcement
  • Clarifies breach applies across all investment strategies of the same SIF

Compliance Requirements

  • AMCs must implement daily monitoring systems for minimum investment threshold
  • RTAs and Depositories must establish necessary systems for implementation
  • AMCs responsible for freezing units upon breach detection
  • AMCs must issue 30-day rebalancing notices to non-compliant investors
  • AMCs must execute automatic redemption if cure period expires without compliance

Important Dates

  • Effective Date: July 29, 2025 (date of circular)
  • Notice Period: 30 calendar days for investor rebalancing
  • Redemption Timeline: Next immediate business day after 30th calendar day of notice period

Impact Assessment

This circular provides operational clarity for SIF compliance monitoring, reducing ambiguity for AMCs and investors. The structured approach with cure periods balances investor protection with regulatory compliance. Impact is moderate as it affects the specialized SIF segment rather than broader mutual fund market. The automatic enforcement mechanism ensures consistent application of minimum investment thresholds across the industry.

Impact Justification

Provides operational clarity for SIF compliance monitoring but affects specialized segment only