The Securities and Exchange Board of India (SEBI) issued a notification on December 31, 2024, regarding the Introduction of a Mutual Funds Lite (MF Lite) framework for passively managed Mutual fund schemes.
This framework applies exclusively to passive MF schemes like index funds, exchange-traded funds (ETFs), and fund of funds (FoFs). It aims to promote ease of entry, attract new players, enhance market liquidity, and increase penetration.
A Working Group was formed to recommend this relaxed regulatory regime, which the Mutual Funds Advisory Committee later deliberated. Subsequently, SEBI amended the Mutual Funds Regulations, 1996, to incorporate the MF Lite provisions via notification SEBI/LAD-NRO/GN/2024/221 dated December 16, 2024.
Scope of MF Lite Framework:
•Covers passive schemes based on specific domestic equity indices with a minimum collective AUM of INR 5,000 Cr.
•Includes debt passive funds based on G-Sec/T-bills/SDL indices meeting the same AUM threshold.
•Applies to Gold and Silver ETFs, and FoFs based on such ETFs.
•Includes overseas ETFs and FoFs linked to single overseas passive funds with indices having an AUM exceeding $20 billion.
Guidelines for Overseas Passive Funds:
•Indices must be broad-based and standardized across the industry.
•Equity indices must include at least 10 securities.
•Only indices with a quantitative threshold/AUM exceeding $20 billion are included in phase 1.
This framework will be implemented in phases, starting with eligible schemes and indices as prescribed by SEBI in consultation with AMFI. Detailed operational guidelines for the MF Lite Framework will follow.
[Notification No. SEBI/HO/IMD/PoD2/P/CIR/2024/183]
