SEBI Introduces MF Lite Framework for Passively Managed Schemes

• The Securities and Exchange Board of India (SEBI) introduced the MF Lite framework on September 30, aiming to promote new players into the mutual fund ecosystem and enhance market liquidity.
• Passively managed schemes are generally less risky than actively managed schemes, often tracking benchmark indexes like BSE Sensex or Nifty50.
• The framework requires a minimum net worth of ₹35 crore for Asset Management Companies (AMCs) operating a passive fund.
• SEBI argues that passive funds’ investment strategy mimics established rules, limiting the scope of the current framework.
• The relaxed framework includes relaxed requirements for sponsors, including net worth, track record, and profitability.
• The framework encourages new players’ entry through governance structures and requirements for net worth holdings.
• The regulator also explores the reduction of trustee oversight in passive fund management, but stipulates that trustees’ role in averting conflict of interest and overseeing related party transactions remains relevant.
• The framework moves away from metrics such as strategy and investment avenues, but seeks to inform prospective investors about the underlying benchmark.
• The responsibilities of the risk management committee(s) are limited in the framework, but can be carried out by the audit committee of the AMC.