Considering the emergence of passive funds i.e. Exchange Traded Funds and Index Funds as an investment product for retail investors globally and various advantages of passive investing like transparency, diversification, lower cost vis-à-vis active funds, a need was felt to review the regulatory framework for passive funds in India.
Given the above, a Working Group was constituted with representation from various stakeholders in the passive funds’ domain like AMCs, Mutual Fund Trustees, Stock Brokers, Market Makers, Stock Exchanges, Clearing Corporations and Industry Expert.
Basis the recommendations of the Working Group and the feedback received from the industry were deliberated in the Mutual Funds Advisory Committee. Considering the recommendations of MFAC, the following have been decided:
1] Norms for Debt Exchange Traded Funds / Index Funds
2] Norms for Market Making Framework for ETFs
3] Investor Education and Awareness Charges
4] Direct transaction in ETFs through AMCs
5] Tracking Error and Tracking Difference
6] Valuation by Fund of Funds investing in ETFs
7] Disclosure of indicative Net Asset Value
8] Liquidity window for Investors of ETFs with AMCs
9] Rebalancing period for Equity ETFs/ Index Funds
10] Disclosure Norms for ETFs/ Index Funds
11] Other Provisions i.e. Minimum subscription amount during NFO, ELSS in Passive Fund category, Nomenclature of ETFs/ Index Funds
Applicability: Circular is effective ‘July 01, 2022’ and also applicable to all existing ETFs/Index Funds.
SEBI Circular link: https://www.sebi.gov.in/legal/circulars/may-2022/circular-on-development-of-passive-funds_59098.html