New Delhi: Markets watchdog Sebi on Monday proposed a relaxed regulatory framework for passively managed mutual fund (MF) schemes in a bid to reduce compliance requirements.
Considering the lower risk inherent in managing passively managed MF schemes, the proposed MF Lite aims to reduce compliance requirement, encourage innovation, encourage competition and promote ease of entry for MFs interested in launching solo. passive schemes, Sebi said in its consultation paper.
Passively managed MF schemes replicate an underlying index, such as ETFs and index funds, where index fund portfolios can be easily tracked. Active fund schemes require expert fund managers to define the investment philosophy and select securities.
However, the current regulatory framework for MFs applies uniformly to all MF schemes and does not differentiate as to the applicability of provisions related to entry barriers (net worth, track record, profitability) and other compliance requirements. for entities that may be willing to launch only passive funds.
Consequently, several provisions of the existing regulatory framework may not be relevant to passively managed schemes; A relaxed framework with light regulations has been proposed such as MF Lite Regulations for passive MF schemes.
Under the proposed framework, MFs wishing to manage only passive schemes (such as exchange-traded funds and index funds) should be covered by the MF Lite Regulations.
However, there may be mutual funds existing as on date, which may opt for management of both active and passive schemes under their existing registration. Therefore, to ensure uniform applicability of the proposed relaxations and provide a level playing field for all passive MF schemes, a two-pronged approach has been adopted in this consultation paper.
Sebi has proposed to ease entry and relax provisions for MFs seeking to launch only passive schemes under MF Lite registration, and ease of compliance, relaxed disclosures and other regulatory requirements for passive schemes under existing MFs as well as schemes that can be released under the MF Lite Registry.
The Securities and Exchange Board of India (Sebi) has sought public comments until July 22 on the proposals.
In its consultation paper, the regulator proposed eligibility requirements for sponsors and AMCs under the primary and alternative eligibility route, under the proposed MF Lite framework.
A minimum net worth of Rs 35 crore for AMCs should be appropriate under the primary route of eligibility; five years' financial experience may not be relevant under the main eligibility pathway of the MF Lite Regulations.
Regarding the alternative eligibility route where there is no need to consider profitability and strong track record of the sponsor, Sebi has suggested a minimum net worth of Rs 75 crore for an AMC and a lock-in period of three years of minimum holding The sponsor must be mandated to ensure the entry of serious players under the MF Lite regime.
The regulator has also proposed roles and responsibilities of a trustee, as well as the board of directors of AMC, in the proposed rules for MF Lite.
Considering the lower risk inherent in managing passively managed MF schemes, the proposed MF Lite aims to reduce compliance requirement, encourage innovation, encourage competition and promote ease of entry for MFs interested in launching solo. passive schemes, Sebi said in its consultation paper.
Passively managed MF schemes replicate an underlying index, such as ETFs and index funds, where index fund portfolios can be easily tracked. Active fund schemes require expert fund managers to define the investment philosophy and select securities.
However, the current regulatory framework for MFs applies uniformly to all MF schemes and does not differentiate as to the applicability of provisions related to entry barriers (net worth, track record, profitability) and other compliance requirements. for entities that may be willing to launch only passive funds.
Consequently, several provisions of the existing regulatory framework may not be relevant to passively managed schemes; A relaxed framework with light regulations has been proposed such as MF Lite Regulations for passive MF schemes.
Under the proposed framework, MFs wishing to manage only passive schemes (such as exchange-traded funds and index funds) should be covered by the MF Lite Regulations.
However, there may be mutual funds existing as on date, which may opt for management of both active and passive schemes under their existing registration. Therefore, to ensure uniform applicability of the proposed relaxations and provide a level playing field for all passive MF schemes, a two-pronged approach has been adopted in this consultation paper.
Sebi has proposed to ease entry and relax provisions for MFs seeking to launch only passive schemes under MF Lite registration, and ease of compliance, relaxed disclosures and other regulatory requirements for passive schemes under existing MFs as well as schemes that can be released under the MF Lite Registry.
The Securities and Exchange Board of India (Sebi) has sought public comments until July 22 on the proposals.
In its consultation paper, the regulator proposed eligibility requirements for sponsors and AMCs under the primary and alternative eligibility route, under the proposed MF Lite framework.
A minimum net worth of Rs 35 crore for AMCs should be appropriate under the primary route of eligibility; five years' financial experience may not be relevant under the main eligibility pathway of the MF Lite Regulations.
Regarding the alternative eligibility route where there is no need to consider profitability and strong track record of the sponsor, Sebi has suggested a minimum net worth of Rs 75 crore for an AMC and a lock-in period of three years of minimum holding The sponsor must be mandated to ensure the entry of serious players under the MF Lite regime.
The regulator has also proposed roles and responsibilities of a trustee, as well as the board of directors of AMC, in the proposed rules for MF Lite.
