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The Securities and Exchange Board of India (SEBI) has proposed new regulations called MF Lite to simplify the criteria for launching passive mutual funds. This initiative aims to make it easier for both existing and new asset management companies (AMCs) to offer passive funds. Key changes include lowering the net worth and profit track record requirements for fund houses focusing on passive schemes, thus reducing compliance burdens and encouraging competition and innovation.

The MF Lite regulations propose three categories of hybrid passive funds: debt-oriented (75% debt, 25% equity), balanced (50% debt, 50% equity), and equity-oriented (75% equity, 25% debt). Each category will have specific investment guidelines and tracking metrics to ensure transparency and performance accuracy. These funds will replicate a composite index, providing investors with diversified exposure to both equity and debt instruments.

SEBI is also looking to introduce close-ended debt passive schemes and standardize the approach for overseas indices used in ETFs and fund of funds (FOFs). The public has been invited to submit feedback on these proposals by July 22, 2024​


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