SEBI to allow fund houses to launch passive hybrid funds

SEBI has issued a consultation paper in which it has proposed introduction of passively managed hybrid funds or ‘hybrid passive fund’. With this, fund houses can launch hybrid ETF or hybrid index funds.

SEBI said, “The working group discussed that the regulatory provision, currently, provide for passive funds to replicate only a debt index or an equity index, with no framework available for a passive fund to replicate a hybrid index i.e. a composite construct of a debt and equity index. It was felt that inclusion of the same may provide further flexibility and diversification opportunities in passive MF segment. It is thus proposed to introduce hybrid passive funds which shall replicate a composite index comprising fixed proportions of equity and debt and enable investors to invest in a single product having exposure to both equity and debt instruments.”

These funds will replicate the performance of a composite index comprising fixed proportion of equity and debt.

To start with, SEBI proposes 3 sets of  hybrid passive funds. Let us look at the table to know more:

SEBI clarified that fund houses can launch 1 scheme per category.

The market regulator said that the underlying equity index can be from the top 250 companies. For instance, AMCs can use Nifty 50, Nifty 100 or Nifty 150 for composite benchmark.

Also, the duration of debt index should be uniform as specified by AMFI. Further, sectoral indices and target maturity indices cannot be part of composite index created for hybrid passive funds.

Such a scheme can be started only if subscription amount reaches Rs.10 crore, clarified SEBI.

In addition, hybrid index funds will have to disclose the tracking error and tracking difference for both equity and debt component and the underlying index. Also, such a tracking difference cannot exceed 1.25%.

You can submit your feedback to SEBI by July 22, 2024. Click here to share your response.