Limited product possibilities in MF Lite as Sebi sets AUM criteria

The strict product launch conditions under the MF Lite framework leaves little room for innovation by asset managers opting for this newly introduced route to enter the mutual fund (MF) business, experts said.

 

In phase one, MF Lite players are allowed to launch products only in popular passive categories, as the Securities and Exchange Board of India (Sebi) has mandated a Rs 5,000 crore threshold for domestic indices to qualify for product launches.

 

According to the framework, an index must already have passive funds with an aggregate asset under management (AUM) of over Rs 5,000 crore.

 

For indices that serve as primary benchmarks for active schemes, the AUM of these active schemes will also be included.

 

 

“The restriction under the MF Lite licence, allowing fund houses to launch only passive schemes linked to indices with over Rs 5,000 crore AUM, significantly limits their ability to offer differentiated products. It confines them to replicating strategies tied to well-established indices, leaving little room for innovation or niche products tailored to emerging themes like ESG (environmental, social, and governance) or tech-focused sectors,” said Jidesh Kumar, managing partner, King Stubb & Kasiva, Advocates and Attorneys.

 

“The Rs 5,000 crore AUM criterion will also hinder the launch of diversified index funds and exchange-traded funds (ETFs). Given that the industry already has norms around diversification and other measures to protect investors, adding the AUM requirement doesn’t make sense,” said a senior MF executive.

 

“MF Lite or non-MF Lite, investors are already getting access to similar schemes. If the objective is to ensure investors do not get certain schemes, then the norms should be consistent across both frameworks,” he added.

 

Currently, only 10 indices are tracked by passive funds with an aggregate AUM exceeding Rs 5,000 crore. These include Nifty 50, Sensex, Bank Nifty, Nifty Next 50, and Nifty 200 Momentum 30. A few sectoral indices, such as information technology, pharmaceuticals, and healthcare, may qualify as they are primary benchmarks for several active funds.

 

The Association of Mutual Funds in India (Amfi) will release the list of qualifying indices at the end of each year.

 

The same conditions apply to debt offerings. For international funds, the AUM threshold is set at $20 billion.

 

“The indices on which overseas passive schemes can be launched shall be standardised across industry and broad-based by nature. Overseas ETFs/index funds and fund of funds (FoFs) investing in overseas ETFs/index funds must comply with the diversification requirement of at least 10 securities in an equity index portfolio,” Sebi said in a circular on Tuesday.

 

The regulator has introduced a relaxed regime for players exclusively offering passive funds.

 

“A relaxed regime with light-touch provisions, the MF Lite Framework, is being introduced only for passive mutual fund schemes. The intent is to promote ease of entry, encourage new players, reduce compliance requirements, increase penetration, facilitate investment diversification, enhance market liquidity, and foster innovation,” it added. 

Former Nesco director pays Rs 21.45 lakh to settle disclosure violation case 

The Securities and Exchange Board of India (Sebi) on Wednesday issued a settlement order on Manu M Parpia, former independent director of NESCO for alleged lapses of Listing Obligations and Disclosure Requirements regulations. The matter has been settled following the payment of Rs 21.45 lakh as the settlement amount. Sebi had issued the showcause notice on this issue in May 2024 alleging that Parpia continued to serve on the board of the company for more than a year as an independent director even after cessation of his tenure on May, 2022, and misleading disclosure in 2023 that he meets the criteria of independence and eligibility at the time of appointment.    - BS Reporter