Sebi Introduces 'MF Lite' Regulations for Passive Mutual Funds

The Securities and Exchange Board of India (Sebi) has approved a relaxed regulatory framework for entities launching only passive mutual fund schemes. The new 'MF Lite' regulations simplify eligibility criteria, compliance requirements, and responsibilities for trustees. This initiative aims to ease entry, encourage innovation, and boost market liquidity.

The Securities and Exchange Board of India (Sebi) has taken a significant step to simplify regulations for mutual funds with its newly approved 'MF Lite' framework. Announced on Monday, this framework offers 'light-touch' regulations aimed at entities interested in launching only passive mutual fund schemes.

The MF Lite regulations ease several requirements, including eligibility criteria for sponsors like net worth, track record, and profitability. They also simplify responsibilities of trustees, the approval process, and necessary disclosures. Sebi's statement emphasized that this new framework is designed to promote easier market entry, encourage new players, reduce compliance burdens, increase market penetration, enhance liquidity, diversify investments, and foster innovation.

Passive mutual fund schemes replicate underlying indexes, such as ETFs and index funds, enabling easy tracking of their portfolios. Unlike active fund schemes that require expert fund managers for security selection, passive schemes function differently and thus benefit from relaxed regulations. Existing AMCs with both active and passive schemes can now opt to separate their passive funds into different group entities or comply with the relaxed MF Lite regulations.

(With inputs from agencies.)