Markets regulator Sebi will come out with a mutual fund light regulations for passive funds as part of efforts to reduce the compliance burden, foster growth as well as lower costs to investors, a senior official said on Friday.
Passive funds is an investment vehicle that tracks a market index or a specific market segment. These funds include passive index funds, Exchange Traded Funds (ETFs), and Fund of Funds investing in ETFs.
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The regulator is looking to reduce compliance requirements for passive funds that are tied to changes in the underlying index and operate on a non-discretionary basis.
To accommodate passive investments, such as index funds and ETFs, the regulator is introducing mutual fund light regulations, news agency PTI quoted Sebi Whole Time Member Ananta Barua, as saying.
“These regulations will provide greater flexibility for index funds and ETFs, enabling them to offer transparency, diversification, and lower costs to investors, compliance burden,” Barua said while speaking at the mutual fund summit organised by industry body Assocham in New Delhi.
According to him, Sebi has revised the requirements for sponsoring a mutual fund, enabling entities with sound financial conditions, including private equity funds, to become sponsors without a mandatory profit track record.
To enhance liquidity in the debt market and address risks, Sebi has put in place prudential regulations for open-ended mutual funds, especially debt funds, he added.
Barua also emphasised that Sebi is committed to promoting good governance practices in the mutual fund industry.
“Trustee supervision of Asset Management Companies (AMCs) has been strengthened, and they now have additional responsibilities for overseeing fairness of fees and expenses, AMC performance, prevention of market abuse, and avoidance of conflicts of interest."
“Moreover, mutual funds are encouraged to exercise their stewardship role by actively participating in voting and corporate governance matters of the companies they invest in,” he noted.
(With PTI inputs)