Sebi unveils new framework for ETFs, index funds
Mumbai: The Securities and Exchange Board of India (Sebi) announced a new framework for managing passive funds — exchange traded funds (ETFs) and index funds — amid growing popularity of such funds as an investment product for retail investors.
It has also allowed mutual funds to launch passively managed equity-linked savings schemes (ELSS) to save taxes under Section 80C of the Income-tax Act.
Under the framework, Sebi has laid down norms for debt ETFs and index funds, its constitution, market making framework for ETFs, investor education and awareness charges, disclosure guidelines and other provisions.
The total assets under management (AUM) of index funds, ETFs and fund of funds investing overseas were Rs 5.27 lakh crore as of this April.
The regulator said the norms for debt ETFs or index funds could be based on indices comprising corporate debt securities or government securities (G-sec), T-bills and/or state development loans (SDLs) or a combination of corporate debt securities and G-secs, T-bills and SDLs. The new framework will come into effect from July 1 and will be applicable to all existing ETFs and index funds, it added.
For an index with at least 80 per cent weight of corporate debt securities, a single issuer should not have more than 15 per cent weight in the index in respect of AAA securities, not more than 12.5 per cent in case of AA securities and not more than 10 per cent in case of A and below rated securities, it said.
In case of a hybrid index — comprising both corporate debt securities and G-sec /SDL — with up to 80 per cent weight of corporate debt securities, a single issuer should not have more than 15 per cent weight in the index in respect of AAA-rated securities. However, for AAA-rated securities of PSUs and AAA-rated securities of PFI (public financial institution) issuers the limit will be 15 per cent.
Further, for AA-rated securities, a single issuer should not have more than 8 per cent weight in the index and not more than 6 per cent in respect of A and below rated securities. “For an index based on G-Sec and SDLs, single issuer limit shall not be applicable,” Sebi said, adding such an index should not have more than 25 per cent weight in a particular group, excluding securities issued by public sector undertakings (PSUs), public financial institutions (PFIs) and public sector banks (PSBs).
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