There is a yawning gap between mutual funds where one can invest Rs 500 as SIP (Systematic Investment Plan) and Portfolio Management Services (PMS) where one needs to have a portfolio of Rs 50 lakh at least. In order to bridge this gap, the regulator of capital markets in India, Sebi (Securities and Exchange Board of India) could take the final formal step of launching mutual fund lite in its board meeting on September 30, reports revealed.
Passive schemes
The framework that the market regulator is expected to deliberate on and approve consists of passive schemes. Mutual Fund Lite Regulations will concern only passive schemes.
As opposed to actively managed funds, passive funds do not indulge in frequent buying and selling of equities or other instruments. These funds mirror a predetermined index and are less expensive than actively managed funds.
AMCs to get green light
Once this step is taken, Sebi will permit Asset management companies (AMC) to introduce the new asset in the market. According to reports several AMCs have already started preparations to launch such schemes for the hungry investors.
What Sebi wants
The mutual fund industry is rising fast in the country and the market regulator wants to expand the market and this new class is one of the means to that end. Sebi desires to encourage the entry of new players in the mutual fund space, increase liquidity, make compliance smoother – all leading to further penetration of the mutual fund industry in the country.
In July Sebi had put out a consultation paper in the public domain outlining this objective and plan. It contained the proposed regulations which were referred to as the MF Lite Regulations for passive schemes. For example, in its paper Sebi proposed a minimum net worth of Rs 35 crore that would enable an AMC to step into this segment. The AMC might have to deploy it permanently in liquid assets.
Lower TER, lower risk
Passive funds charge a total expense ratio (TER) that hovers around 0.20 percentage point or 20 basis points, which is far lower than actively managed funds. The risk with passive funds is also lower than actively managed funds. Therefore, they would appeal to a broad range of risk-averse investors.
Mutual Fund Lite Regulations: In order to expand the mutual fund industry that is attracting millions of Indians, Sebi is actively considering this new segment, reports reveal. Biz News Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
