SEBI plans to finalise MF Lite regulation for passive funds and introduce a new commission structure for distributors to enhance the adoption of passive products among investors.
SEBI has already floated a consultation paper on MF Lite and received comments from the industry and investors.
Unlike active fund management, the risk and expenses on passive funds are very minimal, as they track an index. Hence, SEBI plans to come out with lighter regulation for MFs which want to focus only on passive products.
Madhabi Puri Buch, Chairperson, SEBI, said a separate regulation for passive funds in the form of MF Lite is close to completion and will be announced soon.
Role of distributors
The role of distributors is very important for any product to succeed and the regulator is open to take suggestions on a viable distributor commission structure for passive funds, she said at the Annual General Meeting of AMFI here on Thursday.
The regulator is also working on changes in Stewardship Code to make retail investors’ voice more pronounced in corporate decision-making.
Managing retail equity investors’ money, MFs have a major role to play in decisions put on vote by corporates and SEBI has a lot of expectations on MFs in asserting their role, said Buch.
After the IL&FS crisis, she said SEBI has facilitated Corporate Debt Market Development Fund (CDMDF), which has corpus of ₹20,000 crore and sovereign guarantee to raise funds in times of debt market crisis.
In times of bond market crises like IL&FS, CDMDF will prove a backstage facility by buying highly-rated debt papers from MFs to provide liquidity for meeting redemption pressure.
Bond market
In a move to boost growth of the corporate bond market, SEBI has allowed MFs to do repo transactions on corporate debt securities, commercial papers and certificates of deposits to allow corporates raise short-term loans.
While the primary debt issuance has increased to ₹8.5 lakh crore, trading in the secondary debt market still remains low.
SEBI has democratised wealth management for fixed income by making sure that the disclosure for public and private debt issuances are the same, said Buch.
With all these developments, SEBI hopes that the online bond trading platform will bring in more liquidity in the secondary debt market, she added.