Aiming to mitigate portfolio concentration in index and exchange-traded funds, the Securities and Exchange Board of India last week tweaked their investment norms.
Accordingly, index funds/ETFs are now required to invest in an index that has a minimum of 10 stocks as its constituents. For a sectoral or thematic index (such as pharma, banking, consumption, services sector and MNC), no single stock should have more than 35 per cent weightage in the index. For non-thematic indices, no single stock should have more than 25 per cent weightage.
Besides, total weightage of the top three constituents of the index should not exceed 65 per cent. Further, individual constituents of the index should have a trading frequency greater than or equal to 80 per cent, and an average impact cost of 1 per cent or less over the previous six months.
