SEBI introduces liberalised framework for passively managed mutual funds

In a move aimed at promoting the growth of passively managed mutual funds, the Securities and Exchange Board of India (SEBI) has introduced a new framework known as Mutual Funds Lite (MF Lite).

The MF Lite framework offers relaxed regulatory requirements for entities looking to launch only passive mutual fund schemes, such as Exchange Traded Funds (ETFs) and Index Funds. These schemes follow a rule-based investment strategy with minimal discretion from the Asset Management Company (AMC).

Key benefits of the MF Lite framework include:

* Ease of Entry: Lower barriers to entry for new players in the mutual fund industry.

* Reduced Compliance: Simplified regulatory requirements for passively managed schemes.

* Enhanced Market Liquidity: Increased participation in the market can lead to greater liquidity.

* Investment Diversification: More options for investors to diversify their portfolios.

Existing AMCs that manage both active and passive schemes will have the option to hive off their passive schemes to a separate group entity under the MF Lite framework. Alternatively, they can continue managing their passive schemes under the existing mutual fund regulations while benefiting from the relaxed requirements.

SEBI's introduction of the MF Lite framework is expected to boost the growth of passively managed Mutual Funds in India, providing investors with more affordable and diversified investment options.

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