The capital market regulator’s move to introduce a new asset class, ‘Investment Strategies’ and to allow the mutual funds to leverage the benefits of MF Lite without dividing the existing passive funds into a separate entity will help expand their business and lower fund houses cost.

SEBI has broadened the MF regulations to introduce Investment Strategies, aiming to bridge the gap between mutual funds and Portfolio Management Services (PMS), This initiative seeks to counter the spread of unregistered investment schemes.

With a minimum investment of ₹10 lakh, the product targets investors ready to embrace higher risks for potentially greater returns through a fund managed by qualified SEBI-regulated fund managers.

While both active and passive MF schemes are covered under the purview of MF regulations, the provisions are made primarily for actively managed schemes, which carry higher risks and complexities.

Passive funds follow a rule-based investment strategy and there is negligible discretion with AMCs regarding asset allocation and investment objectives.

Following this, SEBI introduced MF Lite for entities looking to launch only passive MF schemes. The separate regulations include relaxed requirements relating to eligibility criteria for sponsors including net worth, track record and profitability, responsibility of trustees, approval process and disclosures.

SEBI has extended the MF Lite regulation for existing AMCs deciding to continue the passively managed schemes within the existing AMCs under the MF regulations. This will reduce costs for existing MFs as they do not have to hive off their passive funds to avail of MF Lite benefits.

Shashank Pal, Chief Business Officer, PL Wealth Management, said, “Various financial intermediaries marketed several products outside SEBI regulations targeted at informed investors who can take high-risk but cannot afford the minimum investment of ₹50 lakh for PMS.“

“The new investment strategies introduced by SEBI will fill that gap and offer options that traditional MF schemes cannot provide,” he said.

While the details of the MF Lite framework are not yet available, he added it is aimed at reducing the compliance burden on AMCs managing passive funds.