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The Rs.67 lakh crore mutual fund industry, through AMFI, has reportedly approached SEBI seeking a relaxation of norms that prevent fund houses from launching passively managed hybrid index funds, according to two sources familiar with the matter.
According to the current MF Lite regulations, fund houses can launch passive hybrid schemes by tracking the performance of indices having AUM of at least Rs.5000 crore. While equity indices generally meet this AUM criterion, constant maturity indices such as the Nifty 10-year Benchmark G-Sec Index or the Nifty 8-13 Year G-Sec Index fall short of the required AUM.
“We have requested SEBI to do away with this requirement of tracking the performance of constant maturity indices having AUM of Rs.5000 crore. In fact, we along with stock exchanges have requested the regulator to allow us using existing set of debt indices to create a new index for passively managed hybrid funds,” said a senior officials requesting anonymity.
Another official told Cafemutual that the largest fund in the constant maturity index category has an AUM of Rs.3,100 crore, and the average AUM in this category is around Rs.800 crore—well below the required Rs.5,000 crore threshold.
He also mentioned that NSE plans to develop a composite index for hybrid funds, while BSE will partner with CRISIL to offer a similar benchmark for passive funds.
According to SEBI norms, fund houses can launch three categories of hybrid passive funds:
- Balanced (Equity 40%-60% and Debt 40%-60%)
- Equity Oriented (Equity 65%-80% and Debt 20%-35%)
- Debt oriented (Debt 65%-80% and Equity 20%-35%)
Note: Only constant-duration indices are permitted for the debt component
Such fund houses can launch one index fund and one ETF under each category. The fund houses will have to raise at least Rs.10 crore to start the fund.
Further, the market regulator has also allowed fund houses to launch closed ended debt passive funds under the MF Lite Regulations. In this structure, fund houses can launch target maturity closed ended index funds and ETFs.
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