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Informist, Monday, Sept. 30, 2024

 

--SEBI approves 'MF Lite' framework for passive-only mutual funds

 

MUMBAI – The Securities and Exchange Board of India has approved a new framework, termed as 'MF Lite framework', to simplify the regulations around passively managed mutual fund schemes, the regulator said in a release after its board meeting Monday.

 

"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," SEBI said.

 

The market regulator had come out with draft norms regarding the new framework in July and invited comments on the same. Existing mutual fund houses, which have both active and passive schemes, will have to hive off the passive schemes to a different group. This will result in the management of the active and passive scheme by separate asset management companies but under a common sponsor.

 

However, if a fund house chooses to continue passively managed schemes within the existing asset management company under the existing 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, SEBI said in the release.

 

Unlike an active mutual fund scheme, which requires a team of expert fund managers that are responsible for analysis and selection of securities and investment risks, a passively managed scheme replicates an underlying index wherein the portfolios of exchange traded funds or index funds can be tracked as the underlying index compositions that are available in the public domain.

 

The guidelines released in July also state that the entities registered under MF Lite may not be allowed to do any business activity other than managing passive mutual fund schemes. It was also proposed that the details of the investment management agreement in respect of the MF Lite framework will be specified by the Association of Mutual Funds in India, in consultation with SEBI.

 

The regulator had also proposed to increase the limit for purchasing or selling securities through an associate broker from 5% to 10% and in the case of a non-associated broker, to 25% for all entities under MF Lite Regulations.

 

SEBI Monday also said that the returns from investments in alternative investment funds should be pro-rata to their commitment in the scheme and for all other aspects, rights of investors should be pari-passu, meaning on equal footing.

 

The market regulator also allowed entities such as those owned or controlled by governments, multilateral or bilateral development financial institutions, state industrial development corporations and other entities, to subscribe to junior classes of units of alternative investment funds with less than their pro-rata rights in the investments of the scheme.  End

 

Reported by Kabir Sharma

Edited by Ashish Shirke

 

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