Ease of doing business - Streamlining of prudential norm for passive schemes regarding exposure to securities of group companies of the sponsor of Mutual Funds
Summary
SEBI has amended prudential norms for passive schemes to allow higher exposure to sponsor group companies based on index weightage. Equity oriented ETFs and Index Funds tracking specific indices are permitted a 35% cap on such investments, subject to AUM thresholds. Non-compliant schemes must rebalance within 30 business days or face restrictions on launching new schemes.
Text
MF Regulations have been amended vide notification No. SEBI/LAD-NRO/GN/2024/188 dated July 02, 2024 to streamline the extant prudential norm applicable to investments by passively managed Mutual Fund schemes in the group companies of their sponsors.
No Mutual Fund scheme shall make any investment in the listed securities of group companies of the sponsor which is in excess of 25 per cent of the net assets of the scheme, except for investments by equity oriented exchange traded funds (ETFs) and Index Funds.
Equity oriented ETFs and Index Funds, based on widely tracked and non-bespoke indices, can make investments in accordance with the weightage of the constituents of the underlying index. However, such investments shall be subject to an overall cap of 35% of net asset value of the scheme, in the group companies of the sponsor.
Widely tracked and non-bespoke indices shall be indices that are tracked by passive funds or act as primary benchmark for actively managed funds with collective Assets under Management (AUM) of INR 20,000 Cr. and above.
The list of indices based on the criteria specified at paragraph 3.2 above, shall be determined on half yearly basis as per the above specified AUM threshold as on March 31st and September 30th respectively. The list of such indices shall be updated by AMFI and published on its website by April 15th and October 15th respectively every year, after seeking SEBI’s approval.
Passive schemes based on underlying indices, other than those indices mentioned at Annexure A of this circular, shall be rebalanced within 30 business days from the date of issuance of this circular.
In case the portfolios of such schemes are not rebalanced within the period of 30 business days, justification in writing, including details of efforts taken to rebalance the portfolio shall be placed before the Investment Committee of the AMC. The Investment Committee, if so desires, can extend the timeline for rebalancing up to 60 business days from the date of completion of mandated rebalancing period.
In case the portfolios of schemes are not rebalanced within the aforementioned mandated plus extended timelines, AMCs shall not be permitted to launch any new scheme till the time the portfolio is rebalanced and not levy exit load, if any, on the exiting investors of such scheme(s).
Source: SecMarx — Ease of doing business - Streamlining of prudential norm for passive schemes regarding exposure to securities of group companies of the sponsor of Mutual Funds. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.