Capital markets regulator Sebi has approved the introduction of liberalised Mutual Funds Lite (MF Lite) framework for passively managed schemes.
Under the MF Lite framework, Sebi has relaxed requirements relating to eligibility criteria for sponsors – including net worth, track record and profitability, responsibility of trustees, approval process and disclosures.
The framework intends to promote ease of entry, encourage new players, reduce compliance requirements, increase penetration, enhance market liquidity, facilitate investment diversification and foster innovation.
Existing AMCs having both active and passive schemes, will have the option to hive off respective passive schemes, if they so desire, to a different group entity, thereby resulting in management of active and passive schemes by separate AMCs under a common sponsor.
If they choose to continue the passively managed schemes within the existing AMCs, the relaxed disclosures and other regulatory requirements for the passive schemes based on indices that would be covered under the MF Lite framework would be applicable to them as well.
Further, Sebi has also approved a new asset class allowing high-net-worth investors to invest in riskier regulated products. New asset class to have a minimum investment amount of Rs 10 lakh.
The offerings under the new product will be referred to as ‘Investment Strategies’, to maintain clear distinction from the schemes offered under the traditional mutual funds.
The new product is intended to add depth and variety to the investment landscape of the country through a new asset class.
The new product aims to provide investors with a professionally managed and well-regulated product that offers greater flexibility, higher risk-taking capabilities for higher ticket size, while ensuring that appropriate safeguards and risk mitigation measures are in place.
“For instance, safeguards for the new product will include no leverage, no investment in unlisted and unrated instruments beyond those already permitted for Mutual Funds and derivatives exposure limited to 25% of AUM for the purposes other than hedging and rebalancing,” Sebi said.
