On Dec. 31, 2024, IND SEBI issued standardized scheme information document (SID) format requirements for passive mutual fund schemes under the MF LITE framework.
SIDs must include key sections including investment objective and risk meters, plans and options (direct/regular plans), load structure and minimum amounts, asset allocation and benchmarks, fund manager details, scheme expenses and disclosures.
Requires disclosure of tracking error and tracking difference for regular, direct plans.
Must specify allowable investments including equities and equity derivatives, plain vanilla debt securities, physical commodities and exchange traded derivatives, IND GVT securities and money market instruments; most detailed disclosures now on web.
Mandates transparency on transaction charges, timelines, and account statements.
In Feb. 2025, SEBI published comprehensive SIF regulatory framework, see #245386.
On Jul. 1, IND SEBI proposed regs for passively managed funds.
IND SEBI proposed Mutual funds lite regulations (MF LITE) for passively managed mutual funds schemes, to reduce the compliance requirement and foster innovation.
Background
The existing regulatory framework for mutual funds (MFs) is uniformly applicable for all MF schemes and does not differentiate re entry barriers and other compliance requirements for entities who may be desirous of launching only passive funds.
The various provisions may not be relevant for passively managed schemes.
Proposed as MF LITE for passive MF schemes, with an intent to promote ease of entry, encourage new players, reduce compliance requirements and foster innovation.
Proposed Regulations
Revise the eligibility requirements for sponsor and asset management companies (AMCs) under the main and alternative eligibility route, such as lower networth requirements of AMCs, shorten lock-in period of initial shareholding of the sponsor.
New players launching only passive MF schemes may register under MF LITE.
Existing MFs having both active and passive schemes may hive off respective passive schemes, managing both schemes by separate AMCs but under a common sponsor.
Covers role along with responsibilities of trustees as well as the board of AMCs.
Entities registered under MF LITE may not be allowed to do any other business activity.
Covers investment management agreement, risk management committee (RMC) for oversight of risk at AMC level, as well as transactions through associated broker.
Plus simplified scheme information document, submission of trustee report to IND SEBI, investor education and awareness, introduction of hybrid ETFs/ index funds.
Investment and trading in securities by the employees of the AMC(s) and trustee(s).
Compliance and disclosure and disclosure of debt index replication factor (DIRF).
Uniform guidelines for launching equity passive schemes for overseas indices.
In addition to the amendments re MF LITE, the regs introduce specialized investment funds (SIFs) i.e., mutual funds for accredited investors with specific conditions.
These SIFs can operate without a separate trust for launching investment strategies.
The amendment regs are effective on publication in the official gazette (Dec. 16), subject to exceptions; notably the new MF LITE provisions will be implemented 90 days later on Mar. 16, 2025, and the new SIFs provisions take effect on Apr. 1, 2025.
Document dated Dec. 16, 2024, received from SEBI Dec. 17, summarized Dec. 19.
Dec. 31, 2024 Simplified Documentation
On Dec. 31, 2024, IND SEBI issued standardized scheme information document (SID) format requirements for passive mutual fund schemes under the MF LITE framework.
SIDs must include key sections including investment objective and risk meters, plans and options (direct/regular plans), load structure and minimum amounts, asset allocation and benchmarks, fund manager details, scheme expenses and disclosures.
Requires disclosure of tracking error and tracking difference for regular, direct plans.
Must specify allowable investments including equities and equity derivatives, plain vanilla debt securities, physical commodities and exchange traded derivatives, IND GVT securities and money market instruments; most detailed disclosures now on web.
Mandates transparency on transaction charges, timelines, and account statements.
In Feb. 2025, SEBI published comprehensive SIF regulatory framework, see #245386.
