The Securities and Exchange Board of India (SEBI) is set to launch Mutual Fund Lite to promote mutual funds and ease the entry of new players in the market. An important decision on this can be taken in the meeting to be held on Monday i.e. today. This initiative of the Board is also likely to improve the liquidity of the market. This will also reveal new investment opportunities.
In fact, in July 2024, SEBI had proposed MF Lite Regulation, a regulatory framework in the MF segment for passive mutual fund schemes, in a consultation paper in this regard. The objective of this consultation paper is to reduce compliance requirements, promote innovation and provide easier entry to MFs who wish to launch only passive schemes. Recently SEBI had given information about growth in this segment.
What is Mutual Fund Lite?
A new simplified regulatory framework will be issued under this new offering. The MF lite regulations will apply to fund houses that only manage passive schemes like index funds and ETFs. Due to low risk in these schemes, MF Lite regulation rules have been made easy. Meaning, the need for experience in the financial sector has been removed. These fund houses will remain separate from active schemes. Experts say that according to the new rule, the old fund will have to separate its passive and active operations to get the benefit of the new system so that the resources can be utilized better.
What will be the benefit to investors
Under the new rule, cheap and easy investment options will increase for common investors. Such funds will be created which will only manage passive mutual fund schemes like index funds and ETFs. Currently, the total expense ratio of passive funds averages 20 basis points. The fund houses that will manage the schemes are likely to have further reduction in their costs i.e. total expense ratio. With the entry of new players in the market, competition will increase and investors will get options.
