The Securities and Exchange Board of India (Sebi) introduced a brand new framework for managing passive funds — alternate traded funds (ETFs) and index funds — amid rising reputation of such funds as an funding product for retail traders.
It has additionally allowed mutual funds to launch passively managed equity-linked financial savings schemes (ELSS) to avoid wasting taxes underneath Section 80C of the Income-tax Act.
Buy Now | Our greatest subscription plan now has a particular value
Under the framework, Sebi has laid down norms for debt ETFs and index funds, its structure, market making framework for ETFs, investor schooling and consciousness costs, disclosure tips and different provisions.
The complete belongings underneath administration (AUM) of index funds, ETFs and fund of funds investing abroad have been Rs 5.27 lakh crore as of this April.
The regulator stated the norms for debt ETFs or index funds may very well be based mostly on indices comprising company debt securities or authorities securities (G-sec), T-bills and/or state growth loans (SDLs) or a mixture of company debt securities and G-secs, T-bills and SDLs. The new framework will come into impact from July 1 and will probably be relevant to all current ETFs and index funds, it added.
For an index with at the very least 80 per cent weight of company debt securities, a single issuer shouldn’t have greater than 15 per cent weight within the index in respect of AAA securities, no more than 12.5 per cent in case of AA securities and no more than 10 per cent in case of A and beneath rated securities, it stated.
In case of a hybrid index — comprising each company debt securities and G-sec /SDL — with as much as 80 per cent weight of company debt securities, a single issuer shouldn’t have greater than 15 per cent weight within the index in respect of AAA-rated securities. However, for AAA-rated securities of PSUs and AAA-rated securities of PFI (public monetary establishment) issuers the restrict will probably be 15 per cent.
Further, for AA-rated securities, a single issuer shouldn’t have greater than 8 per cent weight within the index and no more than 6 per cent in respect of A and beneath rated securities. “For an index based on G-Sec and SDLs, single issuer limit shall not be applicable,” Sebi stated, including such an index shouldn’t have greater than 25 per cent weight in a selected group, excluding securities issued by PSUs, PFIs and PSBs.
With regard to norms for market making framework for ETFs, Sebi stated asset administration corporations have to appoint at the very least two market makers, who’re members of inventory exchanges, for ETFs to supply steady liquidity on the alternate platform.
