SEBI Update – Ease of doing business – Streamlining of prudential norm for passive schemes regarding exposure to securities of group companies of the sponsor of Mutual Funds

 It was decided to streamline the extant prudential norm applicable to investments by passively managed Mutual Fund schemes in the group companies of their sponsors

Pursuant to the said amendment, clause 9 of Seventh Schedule of the MF Regulations, inter alia mandates that no Mutual Fund scheme shall make any investment in the listed securities of group companies of the sponsor which is in excess of 25 per cent of the net assets of the scheme, except for investments by equity oriented exchange traded funds (ETFs) and Index Funds and subject to such conditions as may be specified by SEBI. Accordingly, it has been decided as under:

Equity oriented ETFs and Index Funds, based on widely tracked and non bespoke indices, can make investments in accordance with the weightage of the constituents of the underlying index. However, such investments shall be subject to an overall cap of 35% of net asset value of the scheme, in the group companies of the sponsor.

Widely tracked and non-bespoke indices shall be indices that are tracked by passive funds or act as primary benchmark for actively managed funds with collective Assets under Management (AUM) of INR 20,000 Cr. and above.

.In case the portfolios of such schemes are not rebalanced within the period of 30 business days, justification in writing, including details of efforts taken to rebalance the portfolio shall be placed before the Investment Committee of the AMC. The Investment Committee, if so desires, can extend the timeline for rebalancing up to 60 business days from the date of completion of the mandated rebalancing period.

Link – https://www.sebi.gov.in/legal/circulars/jul-2024/ease-of-doing-business-streamlining-of-prudential-norm-for-passive-schemes-regarding-exposure-to-securities-of-group-companies-of-the-sponsor-of-mutual-funds_84633.html