The market regulator SEBI will quickly introduce a brand new light-touch regulatory framework for passively managed mutual funds like alternate traded funds (ETFs) and index funds, which have seen a pointy pick-up in belongings beneath administration in latest years.
“We are going to introduce new mutual fund regulations which we are calling ‘Mutual Fund Lite’ regulations for passives [funds],” Securities Exchange Board of India (SEBI) entire time member Ananta Barua stated on Friday, pointing to the surge in the share of ETFs and index funds in complete belongings beneath administration of the fund business from 6% in 2019.
As of March 23, 16.5% of the ₹41.6 lakh crore mutual fund belongings have been in passively run funds that blindly mimic the composition of shares in totally different share market indices just like the NSE Nifty 50 and BSE Sensex.
While ETF items could be traded even intra-day on the bourses, index funds supply conventional mutual fund items which could be purchased or redeemed at their internet asset worth revised each day.
“We have decided to encourage them because these funds provide transparency, diversification and [at a] lower cost vis-à-vis active funds,” Mr. Barua famous at an Assocham mutual fund summit “Their investments are not discretionary, but tied to the nature of the changes in the underlying index,” he added.
“The new type of regulations for them will reduce compliance requirements, which are required for actively managed funds in different aspects, but can be dispensed with for passive funds,” he added. After its final board assembly in March, SEBI chief Madhabi Puri Buch had signalled that 90% of the rule-book for mutual funds could be executed away with for passive funds.
“One of the endeavours of SEBI has been to encourage competition and we encourage more and more asset management companies or mutual funds to be set up, as this is an under-penetrated segment and there is a lot of scope,” Mr. Barua stated.
While four-five new mutual fund homes have been granted registration in latest years, Mr. Barua stated possession norms had now been modified to allow a various set of entities to develop into mutual fund sponsors, together with professionally managed self-sponsored funds.
