Description

SEBI specifies monitoring mechanism for minimum investment threshold compliance in Specialized Investment Funds with automatic redemption provisions.

Summary

SEBI has issued detailed guidelines for monitoring minimum investment threshold compliance in Specialized Investment Funds (SIFs). The circular establishes a framework where AMCs must monitor compliance daily and automatically redeem units if investors fail to maintain the INR 10 lakh minimum investment threshold after receiving 30 days notice.

Key Points

  • AMCs must monitor minimum investment threshold compliance on daily basis
  • Active breach occurs when aggregate investment falls below INR 10 lakh due to investor-initiated transactions
  • Units are frozen for debit upon active breach detection
  • 30 calendar days notice period given to investors to rebalance investments
  • Automatic redemption at next business day NAV if investor fails to comply within notice period
  • Applies to transactions including redemption, transfer, sale on exchanges or off-market transfers

Regulatory Changes

  • Introduction of specific monitoring mechanism for SIF minimum investment threshold
  • Definition of ‘Active Breach’ as fall below INR 10 lakh due to investor-initiated transactions
  • Establishment of freeze-notice-redemption process for non-compliance
  • Daily monitoring requirement for AMCs

Compliance Requirements

  • AMCs: Implement daily monitoring systems, freeze units upon breach, issue 30-day notices, execute automatic redemptions
  • RTAs: Put in place necessary systems for implementation
  • Depositories: Establish required systems for compliance monitoring
  • All entities: Ensure no active breaches of minimum investment threshold

Important Dates

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

Impact Assessment

This circular provides operational clarity for SIF compliance but may impact investor flexibility. The automatic redemption mechanism protects fund structure integrity while the 30-day notice period provides reasonable time for compliance. AMCs and service providers need to implement new monitoring and execution systems.

Impact Justification

High importance due to new compliance framework for SIFs with automatic redemption mechanism affecting investor holdings