SEBI has asked fund houses to reduce portfolio concentration risks in index funds and ETFs.
Here are some key highlights of the circular
- ETFs/ index funds can only mimic an index having a minimum of 10 stocks as its constituents
- No single stock shall have more than 35% in the index. For sectoral or thematic indices, such a weightage cannot be more than 25%.
- The weightage of top three constituents of the index should not exceed 65% of the index
- The individual constituent should be frequently traded i.e. with frequency of at least 80%
Experts said that most index funds and ETFs are already compliant with this requirement. “There will be no impact on existing structure of ETFs and index funds as we meet this requirement,” said a product head of large fund house.
The circular will be come into effect from April 10, 2019.