SEBI Whole Time Member says markets regulator aims to foster growth of passive investments

May 26, 2023

New Delhi [India], May 26 : Ananta Barua, Whole Time Member, Securities and Exchange Board of India (SEBI), said on Friday that the markets regulator aims to foster the growth of passive investments in the Indian mutual fund industry.
"To accommodate passive investments, such as index funds and exchange-traded fund (ETFs), SEBI is introducing Mutual Fund Light regulations," said Ananta Barua, Whole Time Member, SEBI, who was the chief guest at the inaugural session of Assocham's 15th Mutual Fund Summit 2023 on Friday.
Passive investing is an investment strategy wherein investors buy securities and hold them with a long-term goal in mind. Traders here do not involve in the frequent buying and selling of stocks.
Barua further explained that the Mutual Fund Light regulations seek to reduce compliance requirements for passive funds, which are tied to changes in the underlying index and operate on a non-discretionary basis.
"These regulations will provide greater flexibility for index funds and exchange-traded fund (ETFs), enabling them to offer transparency, diversification, and lower costs to investors. By easing the compliance burden, SEBI aims to foster the growth of passive investments in the Indian mutual fund industry", he said at the event organised by the Associated Chamber of Commerce and Industry (ASSOCHAM), an apex industry body, the theme of the summit was ''Investment Opportunities for New India''.
Barua also highlighted other recent changes in the mutual fund industry initiated by SEBI. He informed, "One significant change is the establishment of an exhibition only platform for direct plans, allowing fintech companies to offer access to a larger pool of investors. This move promotes competition and encourages the establishment of more mutual funds."
"Furthermore, SEBI has revised the requirements for sponsoring a mutual fund, enabling entities with sound financial conditions, including private equity funds, to become sponsors without a mandatory profit track record," he said.
The Whole Time Member stated that transparency has always been a cornerstone of the mutual fund industry.
He stated, "Investors can easily access comprehensive information about the portfolio of a scheme, including its performance and holdings, on the fund's website. Additionally, SEBI mandates regular disclosures of portfolio details for debt funds every 15 days. This transparency empowers investors to make informed decisions and helps ensure fair treatment."
Barua also stated that to further enhance liquidity in the debt market and address concentration risks, SEBI has implemented prudential regulations for open-ended mutual funds, especially debt funds.
"These regulations include requirements for minimum liquidity buffers, restrictions on investments in a single company or sector, and self-testing to assess the impact of market movements on the Net Asset Value (NAV) of the fund," he added.
Barua said, "SEBI is committed to promoting good governance practices in the mutual fund industry. Trustee supervision of Asset Management Companies (AMCs) has been strengthened, and they now have additional responsibilities for overseeing fairness of fees and expenses, AMC performance, prevention of market abuse, and avoidance of conflicts of interest. Moreover, mutual funds are encouraged to exercise their stewardship role by actively participating in voting and corporate governance matters of the companies they invest in."
Speaking at the same summit Samar Banwat, Executive Director of the National Securities Depository, stated that India is currently witnessing incredible progress and advancement fuelled by innovation, entrepreneurship, and a robust economic structure.
He informed, "Even young adults as young as 16 or 17 years old are venturing into startup ventures, showcasing their ability to bring their ideas to fruition. In this transformative era, mutual funds hold significant significance as they direct investments towards this emerging India, empowering individuals to actively partake in its exponential growth."