Funds sidestep MF Lite over curbs, high AUM threshold

Ten months since Sebi debuted light-touch regulation for passive funds, no one has signed up

- SrushtiVaidya

MF Lite allows new entrants to sign up to manage passive funds, and existing fund houses to spin off passive operations to gain from easier norms, lower costs.

(REUTERS)

Mutual funds have stayed clear of MF Lite, anew light-touch regulation for passive funds, ironically at atime when ever more investors are flocking to such funds.

According to industry executives, the disinterest stems from several factors: new entrants are tied to passive funds; a high asset threshold restricts product flexibility by excluding niche indices; existing fund houses face complex operational as well as legal barriers to hiving off passive operations; and the low expense fees of passive funds also dissuade small new entrants altogether.

The result: Ten months since the Securities and Exchange Board of India (Sebi) debuted MF Lite in December 2024 for both new and existing fund houses, no one has signed up.

ME Lite allows new entrants to sign up solely to manage passive funds, and existing fund houses to spin off their passive operations to gain from easier norms and lower costs.