SEBI To Launch MF Lite for Passive Funds in Upcoming Board Meet

The Securities and Exchange Board of India (SEBI) is poised to introduce a new regulatory framework, MF Lite, designed to streamline operations for passive funds like index funds and ETFs. This move, as highlighted by SEBI Chairperson Madhabi Puri Buch, aims to foster growth in the passive investment space.

What is MF Lite?

MF Lite is a simplified regulatory regime that allows mutual fund houses to focus exclusively on passive schemes. These funds track market indices, offering lower costs and reduced management efforts compared to actively managed funds. Under MF Lite, fund houses will enjoy relaxed compliance requirements, lower operational costs, and fewer regulatory burdens.

Who Will Benefit?

• New Players: The relaxed entry norms will attract smaller players to the mutual fund industry, making it easier for them to participate in the passive investment space.
• Existing Fund Houses: Current mutual fund companies can benefit by separating their passive fund operations into a new entity under MF Lite. This allows them to focus on growing passive assets without the complexities of managing active funds.
• Retail Investors: MF Lite may lead to an increase in affordable passive investment options. Investors can potentially access low-cost funds that track both equity and debt markets.

Key Provisions of MF Lite

• Reduced Entry Barriers: SEBI may lower the net worth criteria for sponsors of passive funds, making it easier for new players to enter the market.
• Hybrid Passive Funds: MF Lite will introduce hybrid passive funds, allowing investors to invest in both equity and debt. Three categories will be permitted initially: debt-oriented, balanced, and equity-oriented.
• Cost Reduction: Fund houses can reduce costs by focusing solely on passive schemes, which typically require fewer resources to manage.

Conclusion

MF Lite represents a significant step forward in promoting passive investing in India. By simplifying regulations and reducing barriers to entry, SEBI aims to create a more competitive and accessible market for investors seeking low-cost, index-based investment options.

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Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.