The market regulator 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 pick-up in assets under management in recent 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) whole time member Ananta Barua said on Friday, pointing to the surge in the share of ETFs and index funds in total assets under management of the fund industry 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 mutual fund units which can be bought or redeemed at their net asset value 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 noted 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 last board meeting in March, SEBI chief Madhabi Puri Buch had signalled that 90% of the rule-book for mutual funds would be done 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 said.
While four-five new mutual fund houses have been granted registration in recent years, Mr. Barua said ownership norms had now been changed to enable a diverse set of entities to become mutual fund sponsors, including professionally managed self-sponsored funds.
