Context:
The Securities and Exchange Board of India (SEBI) is set to revamp mutual fund regulations by introducing a separate framework for passive schemes and expanding the scope of active fund categories. These changes aim to ensure greater clarity, investor choice, and consistency in the mutual fund space amid rising scheme proliferation.
Key Proposals and Changes
- Separate Regulations for Passive Funds
- SEBI plans to create a dedicated regulatory framework for passive investment schemes, such as ETFs and index funds.
- This is intended to curb redundancy and overlaps, given the rapid growth in passive products.
- Expansion of Active Categories
- Active equity, hybrid, and debt fund categories will be broadened to provide more tailored investment strategies for investors.
- Value and Contra Funds Allowed Together
- Mutual fund houses will now be permitted to offer both value and contra schemes.
- Earlier, AMCs could only launch one of the two, to avoid category duplication.
- New Sectoral Debt Fund Category
- A new category will permit schemes that invest over 80% of their portfolio in debt instruments of a specific sector (e.g., infrastructure, power, or banking).
- This is designed to offer targeted debt exposure for investors seeking sector-specific credit plays.
- Expanded Solution-Oriented Schemes
- The number of solution-oriented mutual fund schemes (like retirement and children’s plans) will increase from 2 to 6.
- This provides more flexibility and customisation for long-term investors with specific financial goals.
- Retirement Fund of Fund (FoF) Category
- A new Retirement FoF category will be allowed, investing across equity, hybrid, and debt funds.
- SEBI will allow one Life Cycle FoF launch every 5 years, with a maximum tenure of 30 years.
- This move aligns with long-term retirement planning trends and the need for diversified allocation.
