Sebi Approves 'Light-Touch' Rules for Passive Mutual Funds

New Delhi, Sep 30 (PTI) Markets watchdog Sebi board on Monday cleared a relaxed framework with 'light-touch' regulations for entities desirous of launching only passive mutual fund schemes.

MF Lite framework or light touch regulations include relaxed requirements relating to eligibility criteria for sponsors, including net worth, track record and profitability, the responsibility of trustees, approval process and disclosures, Sebi said in a statement.

The framework intends to promote ease of entry, encourage new players, reduce compliance requirements, increase penetration, enhance market liquidity, facilitate investment diversification and foster innovation.

Passively managed MF schemes replicate an underlying index like ETFs and index funds where portfolios of index funds can be easily tracked.

Active fund schemes require expert fund managers who define investment philosophy and select securities.

The present regulatory framework for MFs is, however, uniformly applicable for all schemes and does not differentiate regarding the applicability of provisions relating to entry barriers -- net worth, track record, profitability -- and other compliance requirements for entities who may be desirous of launching only passive funds.

Accordingly, various provisions of the existing regulatory framework may not be relevant for passively managed schemes, a relaxed framework with light-touch regulations has been approved as MF Lite Regulations for passive MF schemes.

Under this, MFs desirous of managing only passive schemes (like Exchange Traded Funds and Index funds) should be covered under the MF Lite Regulations.

Sebi said that existing AMCs having both active and passive schemes will have the option to hive off respective passive schemes, if they so desire, to a different group entity, thereby, resulting in the management of active and passive schemes by separate AMCs under a common sponsor.

If they choose to continue the passively managed schemes within the existing AMCs under the existing MF Regulations, the relaxed disclosures and other regulatory requirements for the passive schemes based on indices that would be covered under the MF Lite framework would be applicable to them as well.