Sebi launched Mutual Funds Lite framework to promote passive fund schemes
On Tuesday, capital markets regulator Sebi announced the launch of the Mutual Funds Lite (MF Lite) framework to ease the compliance process for entities launching passively managed mutual fund schemes.
The framework is designed to encourage new entrants, encourage innovation, and encourage investment diversification in the mutual fund industry.
The Securities and Exchange Board of India (Sebi) said the MF Lite framework will be applicable to passive schemes, including index funds, exchange-traded funds (ETFs), funds of funds (FoFs), and others specified by the regulator.
It aims to streamline processes and reduce barriers to businesses that focus only on passive investment products, a move that is expected to increase capital in the market and facilitate the entry of new players.
The framework is based on the recommendations made by a working group set up by Sebi, which was later approved by the Mutual Funds Advisory Committee. The markets regulator has amended the Mutual Funds Regulations 1996 to include the provisions of MF Lite, with effect from March 16, 2025.
It also mandates a different eligibility criteria for sponsors, including a minimum of 20 years of cumulative experience for key employees, and allows private equity funds to fund MF Lite businesses under certain conditions.
In addition, the framework simplifies compliance requirements, such as simplified disclosure norms and voluntary reporting by administrators to reduce operational burdens.
The markets body said the MF Lite framework will initially include domestic equity index-based schemes with assets under management (AUM) of Rs 5,000 crore or more, G-Sec-based debt funds, gold and silver ETFs, and ETFs some overseas. .
Existing mutual funds that manage both active and passive schemes can migrate their portfolios to different businesses under the new structure, according to the circular.
The Sebi circular also introduces simplified Scheme Information Documents (SIDs) for mutual funds and allows hybrid ETFs that include equity and debt exposure.
The regulator also emphasized transparency by requiring monthly portfolio disclosures for non-performing loan programs and quarterly disclosures for equity passive programs.
The MF Lite framework aims to increase investor confidence by ensuring strong governance while maintaining the flexibility of asset management companies.
