New Sebi norms limit risk in passive funds, but higher costs anticipated

The purpose of the new rules is to ensure that passive funds remain adequately diversified

The Securities and Exchange Board of India (Sebi) has issued new rules that limit the amount of concentration risk that passive funds (index funds and exchange-traded funds or ETFs) can take. Such norms already exist for active funds, such as exposure to stock cannot exceed 10 per cent. 
 

The Sebi circular contains five key stipulations. No index should have fewer than 10 stocks. The weight of a single stock should not exceed 25 per cent of the portfolio in a diversified (non-sectoral/non-thematic) index, and it should not exceed 35 per cent in case of a sectoral/thematic index. The weight of