Sebi proposes easing investment guidelines for passive funds

The Securities and Exchange Board of India (Sebi) has proposed to exclude equity-oriented passive funds from the 25 per cent investment limit in group companies.

The regulator said the move will allow exchange-traded funds (ETFS) and index funds to track the underlying index without any unintended tracking error.

At present, all equity schemes, be it active or passive, have to comply with the 25 per cent limit while investing in group companies.

The cap on group company investments can be a hindrance for sectoral passive offerings, where the index may have over 25 per cent to a single company. Sebi plans to ease the regulation only for widelytracked and non-bespoke indices.

The proposal is part of a Sebi consultation paper that looks to enhance the ease of doing business for mutual funds (MFS).

The other proposal is to allow fund houses to have a single fund manager for commodity and overseas investments.

At present, MFS are mandated to have dedicated fund managers for commodities and overseas investments. “The current requirement with respect to mandatory appointment of dedicated fund managers for commodity and overseas investments may be made optional,” the regulator stated in the paper, adding that the fund manager should have adequate expertise in both the asset classes.

For investors, the regulator plans to do away with the mandatory requirement of either declaring a nominee or opting out if the account is jointly held.

Sebi said that the risk of fraud or account remaining unclaimed is lower in such accounts as the "surviving holder(s) in a jointly held folio takes precedence over nominee during transmission of units.”

Sebi said it was working to ease and reduce the cost of compliance for participants in the financial sector. This was nudged by the announcements made by finance minister Nirmala Sitharaman in the Budget.

Earlier this month, the market regulator proposed mandating registration of portfolio management services (PMS) distributors with the association of portfolio managers (APMI).

Another set of measures towards ease of doing business has been proposed for alternative investment funds (AIFS) and initial public offerings (IPO).