SEBI Releases Consultation Paper on ‘Ease of Doing Business Initiatives for ‘Mutual Funds’

Consultation Paper; Dated: 23.02.2024

SEBI has released a Consultation Paper on the ease of doing business initiatives for Mutual Funds (MFs). The objective of the consultation paper is to seek comments/ suggestions from the public on proposals regarding ease of doing business initiatives for MFs.

The comments received from the public regarding the MF Regulations were forwarded to the working group (WG) for consideration in its final recommendation. The WG undertook a comprehensive review of various processes and guidelines applicable to the MFs and has provided its interim recommendations on the following key issues –

(a) appt. of a single fund manager for domestic and overseas/commodity funds,

(b) nomination of MF units and

(c) streamlining prudential norms of passive schemes w.r.t exposures to a single stock of own group companies.

The consultation paper provides the details of the recommendations of the working group and seeks suggestions from the public on the same. The comments/suggestions are meant to be submitted by March 15, 2024.

Recommendations made by SEBI’s Working Group

The following are the recommendations made by the SEBI’s Working group –

(a) The current requirement w.r.t mandatory appointment of dedicated fund managers for commodity and overseas investments may be made optional, subject to the condition. The condition is that AMCs must ensure the competency of the fund manager they choose to appoint and satisfy themselves that the fund manager has adequate expertise and experience required for such investments in commodities and overseas securities. Further, the Board of AMCs must be responsible for ensuring compliance and reporting regarding the same to trustees on a periodic basis.

(b) The requirement of nomination may be made optional in the case of jointly held folios.

(c) Equity oriented Exchange Traded Funds (ETFs) and index funds, based on widely tracked and non-bespoke indices may be excluded from the requirement of an investment limit of 25% in group companies of sponsors so that investments may be made in accordance with the weightage of the constituents of the underlying index avoiding any unintended tracking error.

These recommendations aim to enhance flexibility and streamline procedures in investment management. By making the appointment of dedicated fund managers optional, AMCs can prioritize expertise in their choices, ensuring better investment decisions. Simplifying the nomination process for jointly held folios offers investors greater convenience. Lastly, excluding certain funds from the 25% investment limit in group companies of sponsors facilitates more accurate tracking of market indices, potentially benefitting investors through reduced tracking errors and improved efficiency.

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