In a bid to boost passive investments, capital market regulator SEBI plans to ease regulations for index funds and exchange traded funds.

Ananta Barua, Whole Time Member, SEBI, said to facilitate passive investments such as index funds and ETFs, the regulator will introduce new norms that will reduce compliance requirements for passive funds. These funds are linked to variations in the underlying index and operate based on predetermined rules, without discretionary decision-making.

The regulations will provide greater flexibility for index funds and ETFs, enabling them to offer transparency, diversification, and lower costs to investors, he said at 15th Mutual Fund Summit organised by the Associated Chamber of Commerce and Industry on Friday. SEBI aims to foster the growth of passive investments in the Indian mutual fund industry by easing the compliance burden, he added.

Barua said 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.

“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,” he said.

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 of the fund,“ he added.

Demat for MFs

Samar Banwat, Executive Director, National Securities Depository said many mutual fund investors have a demat account but choose not to receive mutual funds in dematerialised form.

By opting for a demat account to hold mutual funds, investors can benefit from a centralised process and have a single point of contact—the depository participant—for all matters related to their assets, he added.

Moreover, mutual fund units held in a demat account can serve as collateral, allowing clients to pledge the units and obtain loans against them. It can also be used as collateral for trading through the marginless facility, he said.