Description

SEBI clarifies mechanism for monitoring compliance with minimum investment threshold of INR 10 lakh for SIF investors, including breach procedures and automatic redemption process.

Summary

SEBI has issued detailed guidelines for monitoring compliance with the Minimum Investment Threshold of INR 10 lakh under Specialized Investment Funds (SIF). The circular establishes a comprehensive breach management system including unit freezing, 30-day notice periods, and automatic redemption procedures for non-compliant investors.

Key Points

  • AMCs must monitor compliance with Minimum Investment Threshold on daily basis
  • Active breach occurs when investor’s total investment falls below INR 10 lakh due to investor-initiated transactions
  • All units across investment strategies get frozen for debit upon breach detection
  • 30 calendar day notice period provided to investors to rebalance investments
  • Automatic redemption at next business day NAV if investor fails to comply within notice period
  • Units unfrozen if investor rebalances within 30-day period

Regulatory Changes

  • Clarifies breach monitoring mechanism based on industry feedback
  • Defines ‘Active Breach’ as fall below INR 10 lakh threshold due to investor transactions
  • Establishes automatic remediation process with defined timelines
  • Specifies unit freezing and unfreezing procedures

Compliance Requirements

  • AMCs: Implement daily monitoring systems for threshold compliance
  • AMCs: Freeze units immediately upon breach detection
  • AMCs: Issue 30-day rebalancing notices to non-compliant investors
  • AMCs: Execute automatic redemptions for persistent breaches
  • RTAs and Depositories: Implement necessary systems for circular compliance
  • All entities: Put in place operational frameworks for breach management

Important Dates

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

Impact Assessment

Operational Impact: High - requires significant system upgrades by AMCs, RTAs, and depositories for automated monitoring and breach management. Investor Impact: High - SIF investors face potential forced redemptions if unable to maintain minimum thresholds. Market Impact: Medium - may affect SIF liquidity patterns and investor behavior. Compliance Cost: High - substantial technology and process investments required across the mutual fund ecosystem.

Impact Justification

Critical compliance framework for SIF operations affecting all AMCs, RTAs, and SIF investors with specific breach remediation procedures