- SEBI will soon introduce a new light-touch regulatory framework for passively managed mutual funds like exchange traded funds (ETFs) and index funds, which have seen a sharp uptick in assets under management (AUM) in recent years, a member said.
- “We are going to introduce new mutual fund regulations which we are calling ‘Mutual Fund Lite’ regulations for passives [funds],” Securities and Exchange Board of India (SEBI) whole-time member Ananta Barua said on Friday, pointing to the surge in the share of ETFs and index funds in industrywide AUM, from 6% in 2019.
- As of March 23, 16.5% of the ₹41.6 lakh crore mutual fund assets were in passively run funds that blindly mimic the composition of stocks in different share market indices like the NSE Nifty 50 and BSE Sensex.
- While ETF units can be traded even intra-day on the bourses, index funds offer traditional MF units, which can be bought or redeemed at their net asset value that is revised daily.
- “We have decided to encourage them because these funds provide transparency, diversification and [at a] lower cost vis-à-vis active funds,” Mr. Barua observed at an Assocham MF summit.
- “Their investments are not discretionary, but tied to the nature of the changes in the underlying index.
- “The new type of regulations… will reduce compliance requirements, which are required for actively managed funds in different aspects, but can be dispensed with for passive funds.
SOURCE: THE HINDU, THE ECONOMIC TIMES, PIB