TaxTMI 
TaxTMI 
Introduction of a Mutual Funds Lite (MF Lite) framework for passively managed schemes of Mutual Funds
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....h an intent to promote ease of entry, encourage new players, reduce compliance requirements, increase penetration, facilitate investment diversification, increase market liquidity and foster innovation. 2. In this regard, a Working Group was formed by SEBI to study and recommend a relaxed regime for passively managed MF schemes. The recommendations of the Working Group were deliberated in the Mutual Funds Advisory Committee (MFAC) and subsequent to that, SEBI (Mutual Funds) Regulations, 1996 ("MF Regulations") was amended vide notification No. SEBI/LAD-NRO/GN/2024/221 dated December 16, 2024. In view of the above, various provisions relating to MF Lite Framework are covered under the following paragraphs. 3. Categories of passive schemes to be covered under MF Lite framework i. Regulation 79(1)(b) of Chapter XI of the MF Regulation defines "MF Lite" as a mutual fund that is having only such index funds, exchange traded funds, fund of funds or other mutual fund schemes as may be specified by the Board from time to time. ii. As per Regulation 79(1)(d) of Chapter XI of the MF Regulation, MF Lite scheme is any scheme launched by an MF Lite or a....
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....MF Lite. AMFI, in consultation with SEBI, shall prescribe the list of such equity overseas indices on a periodic basis. Section 1 5. In furtherance to the above, this section shall be applicable to entities intending to get registered under Chapter XI of MF Regulations on "MF Lite Framework" to launch only MF Lite schemes. A. Eligibility criteria for Sponsor of MF Lite i. Clause (iii) of the first proviso to Regulation 81 of Chapter XI of the MF Regulations inter alia states that, the sponsor shall appoint experienced personnel in the MF Lite asset management company such that the total combined experience of Chief Executive Officer, Chief Operating Officer, Chief Compliance Officer and Chief Investment Officer shall be at least twenty years. Further, as per clause (vi) of first proviso to Regulation 81 of Chapter XI of the MF Regulations, the sponsor shall ensure that other conditions in this regard as may be specified by the Board from time to time are adhered to. ii. Accordingly, it has been decided as under: a. In cases of both the main and alternate eligibility routes, AMCs may appoint a separate Chief Risk Officer (CRO) o....
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.... period of 3 years shall also be applicable to the shareholding of PE in the corporate entity, which is sponsoring the MF Lite. IV. The experience, track record and eligibility regarding the fit and proper criteria of any applicant PE to become sponsor of an MF Lite shall be ascertained through its conduct in the respective home jurisdiction. C. Reduction of stake and disassociation of sponsor i. Clause 1A.1.3.D of "Master Circular for Mutual Funds" dated June 27, 2024 describes various provisions w.r.t "Reduction of stake and disassociation of sponsor" and shall also be applicable for AMCs registered under Chapter XI of MF Regulations on "MF Lite Framework" except sub- clause 1A.1.3.D (iii)(c). ii. For MF Lite Framework, in place of sub- clause 1A.1.3.D (iii)(c) of the Master Circular, the following shall be applicable: a. Net profit of the AMC after providing for depreciation, interest and tax in 3 out of immediately preceding 5 years including the fifth year; and average net annual profit after providing for depreciation, interest and tax during the immediately preceding ....
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.... worth of the sponsor or funds tied up by the sponsor is to the extent of aggregate par value or market value of the shares proposed to be acquired, whichever is higher. In this regard, the following has been decided: a. In case of change in control of an existing MF Lite AMC due to acquisition of shares, where the cost of acquisition is funded out of borrowings by a sponsor, the sponsor shall have sufficient other assets to encumber for borrowings other than the shares of the proposed AMC. b. The sponsor's stake in the proposed AMC shall be free from encumbrance, in any form, at all points of times. ii. In terms of clause (iv) to the first proviso of Regulation 81 (a) of Chapter XI of the MF Regulations, the sponsor has to ensure that in case of acquisition of an existing AMC, the&nb....
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....ive schemes may hive off respective passive schemes covered under MF Lite Framework, if they so desire, to a different group entity, thereby resulting in management of active and passive schemes by separate AMCs but under a common sponsor. In case of hiving off, the following shall need to be complied with: I. The sponsor shall completely segregate and ringfence its resources including infrastructure, technology and staff etc. for passive MF management from the active MF management. However, the MF Lite AMC may outsource certain other support functions namely, sales and marketing, Human Resources (HR) and administration from the existing AMC with an outsourcing agreement in place, with all transactions at arm's length basis. II. Various regulatory requirements including continuous net worth requirement shall be made separately applicable to both the existing AMC and the MF Lite AMC. III. MF Lite AMC can carry the past track records of passive schemes under it. IV. A sponsor shall be permitted to obtain up to 2 registrations i.e. one each for MF- active and MF- Lite. V. The hive-off of the passive business by an existing AMC s....
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....an MF Lite AMC shall be optional and the audit committee of AMC may undertake the additional role of RMC in case of MF Lite. iii. Clause 6.1.1 of Master Circular for Mutual Funds dated June 27, 2024 mandates the trustees to constitute an Audit Committee. In this regard constitution of the audit committee shall be optional for trustees of an MF Lite AMC. iv. Clause 6.8 of Master Circular for Mutual Funds dated June 27, 2024 on "Resources for Trustees of Mutual Funds" shall be optional for trustees of an MF Lite AMC. v. In case an existing AMC doesn't hive off its passive schemes and continues to manage the passive schemes under the current MF Regulations, the reduced roles and responsibilities of trustees as mentioned in Chapter XI of the MF Regulations shall also be applicable to the existing trustees of such AMC but only pertaining to the passive funds allowed under the MF lite framework. vi. Apart from the above, reporting presently required to be made to trustees by AMC shall continue for MF Lite also, for information of the trustees. In case AMC fails to timely submit the same to trustee, the trustee shall intimate regarding the same to SEBI.....
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....l including the chief investment officer, registrars and share transfer agents, compliance officer, auditor, custodian etc. and empanelment of brokers. f. Responsibility for valuation of investments in accordance with the specified requirements of the MF Regulations. g. Constitution of Unit Holders Protection Committee (UHPC) as per Regulation 87(27) of Chapter XI of the MF Regulations and clause 6.7C of "Master Circular for Mutual Funds" dated June 27, 2024. iv. The trustees are presently required to grant following approvals, which shall be accorded by the Board of AMC under the MF Lite framework: a. Approval for parking of funds pending deployment, in case it exceeds specified limit. b. Approval for a detailed written policy on creation of segregated portfolio (in case of debt oriented mutual funds) and necessary monitoring of recovery of investment proceeds. K. Investment Management Agreement i. In terms of Regulation 85(2) of Chapter XI of the MF Regulations, the investment management agreement shall contain such clauses as may be specified by the Board and such other clauses as are necessary for the pu....
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....ramework or not. If passive schemes based on the aforesaid indices are already launched by the existing AMCs, the following proposals shall also be applicable to those passive schemes. A. Simplified Scheme Information Document SEBI had simplified and streamlined the Scheme Information Documents (SID) of mutual funds schemes as per paragraph 1.1 of the "Master Circular for Mutual Funds" dated June 27, 2024. The format of SID is further simplified, standardized and rationalized for passive schemes based on underlying indices as per clause 3 and clause 4 of this circular. The format of the simplified SID for such schemes is placed at Annexure A of the circular. The simplified SID at Annexure A shall be applicable for filing of all passive schemes based on underlying indices those are permitted under clause 3 and clause 4 of this circular. B. Investor education and awareness Paragraph 10.1.16 of the "Master Circular for Mutual Funds" dated June 27, 2024 prescribes allocation of funds towards "Investor Education Awareness". In this regard, the following has been decided: a. The AMCs shall allocate funds tow....
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....Funds" dated June 27, 2024 specifies norms for portfolio disclosures of mutual fund schemes. In this regard, the following has been decided: I. Debt passive schemes shall disclose their scheme portfolio on a monthly basis within 10 days of every month. II. Hybrid passive schemes (please refer to clause 7(A) of this circular) shall disclose their scheme portfolio on a monthly basis within 10 days of every month. III. Equity passive schemes shall disclose their scheme portfolio within 10 days from the close of each quarter. IV. Separate portfolio disclosure of passive schemes on a half yearly basis shall be done away with. iii. Unaudited Half Yearly Financials Paragraph 5.3 of the "Master Circular for Mutual Funds" dated June 27, 2024 specifies publication of the unaudited half-yearly results. In this respect, it has been decided to do away with the requirement for publishing unaudited half yearly financials of the passive schemes. The Annual Reports of such schemes shall, however, be required to continue to provide such details. E. Investments by passive schemes i. The underlying securities in which passiv....
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....e. v. The minimum subscription amount at the time of New Fund Offer (NFO) for Hybrid ETFs/ Index Funds shall be Rs. 10 Crore. vi. The ETF/ Index Fund shall evaluate and ensure compliance of the asset allocation of equity and debt for all its Hybrid ETFs/ Index Funds, at the end of every calendar quarter. vii. The provisions regarding composition of indices for debt ETFs / Index Funds as specified in paragraph 3.5 of the Master Circular for Mutual Funds, shall apply to the debt component of Hybrid ETFs / Index Funds also. Further, debt indices for this purpose shall be only constant duration indices as permitted under clause 3 of this circular. viii. The provisions regarding composition of indices for Equity ETFs / Index Funds under paragraph 3.4 of the Master Circular for Mutual Funds shall apply to the Equity Index component of Hybrid ETFs / Index Funds. ix. The underlying index to be tracked by such hybrid funds shall be the composition of an equity and a debt index from the list of equity and debt indices as permitted under clause 3 of this circular. x. The provisions regarding replication and rebalanc....