The Securities and Exchange Board of India (Sebi) on Thursday tightened compliance norms for mutual fund schemes, regulating that rebalancing timelines will now apply across types of passive breaches in actively managed funds and not just those related to asset allocation.Until now, SEBI’s mandate for portfolio rebalancing within 30 business days applied only to passive breaches related to asset allocation. With the new directive, this timeline will now be enforced across the board for all passive breaches in actively managed schemes, excluding Index Funds and Exchange Traded Funds (ETFs).The clarification comes on the after a recommendation by Sebi’s Mutual Funds Advisory Committee (MFAC), which pushed for a broader, more consistent approach to compliance.“In view of…the recommendation of the Mutual Funds Advisory Committee (MFAC), it is clarified that the provisions shall be applicable for all types of passive breaches for the actively managed mutual fund schemes,” the market regulator said in a circular.While active breaches, caused by direct decisions of the AMCs, are already treated as violations of mutual fund regulations, Sebi acknowledged that passive breaches, though not deliberate, still have the potential to alter the risk profile of investment schemes. As such, timely rebalancing remains essential.What are passive breaches ?A passive breach refers to an unintended deviation from the prescribed asset allocation or regulatory limits, which does not stem from any direct action or inaction by Asset Management Companies (AMCs). These breaches are typically beyond the control of fund managers and may result from events such as corporate actions, sharp movements in the prices of underlying securities, the maturity of instruments, or large-scale investor redemptions. For all mutual fund schemes, excluding Index Funds and Exchange Traded Funds (ETFs), Sebi requires that portfolios affected by such breaches be rebalanced within 30 business days.