The Securities and Exchange Board of India (Sebi) has proposed to exclude equity-oriented passive funds from the 25 per cent investment limit in group companies. The regulator said that the move will allow exchange-traded funds (ETFs) and index funds to track the underlying index without any unintended tracking error.
At present, all equity schemes, be it active or passive, have to comply with the 25 per cent limit while investing in group companies.
The cap on group company investments can be a hindrance for sectoral passive offerings, where the index may have over 25 per cent in a single company.
Sebi plans to ease the regulation only for widely tracked and non-bespoke indices.
The proposal is part of a Sebi consultation paper that looks to enhance the ease of doing business for mutual funds (MFs).
The other proposal is to allow fund houses to have a single fund manager for commodity and overseas investments. At present, MFs are mandated to have dedicated fund managers for commodities and overseas investments.
“The current requirement with respect to the mandatory appointment of dedicated fund managers for commodity and overseas investments may be made optional,” the regulator stated in the paper, adding that the fund manager should have adequate expertise in both the asset classes.
For investors, the regulator plans to do away with the mandatory requirement of either declaring a nominee or opting out if the account is jointly held. Sebi reasoned that the risk of fraud or account remaining unclaimed are lower in such accounts as the “surviving holder(s) in a jointly held folio take precedence over nominee during transmission of units”.
Sebi said it was working to ease and reduce the cost of compliance for participants in the financial sector, nudged by the announcements made by Finance Minister Nirmala Sitharaman in the FY 2023-2024 Budget.
Earlier this month, the market regulator proposed mandating registration of portfolio management services (PMS) distributors with the Association of Portfolio Managers (APMI). Another set of measures towards ease of business have been proposed for Alternative Investment Funds (AIFs) and initial public offerings (IPOs).
An ease of doing committee had recommended giving companies more flexibility to alter the issue size following the filing of an offer document and recommending more avenues for maintaining the mandatory 20 per cent minimum promoters’ contribution (MPC) post-listing.
Sebi is also working to bring a new set of regulations for MFs that want to offer only passive investment products. The regulatory framework will have fewer compliance requirements vis-a-vis the one that is applicable to all MFs.
First Published: Feb 23 2024 | 8:37 PM IST