India to ease capital, disclosure guidelines for passive funds

India’s markets regulator plans to decrease capital and disclosure necessities for fund homes that run passive funding schemes, in accordance with three sources with direct information of the matter.

Proposed new guidelines would additionally enable present fund homes to hive off their passive funding schemes into separate entities to make the most of the looser regulation, these folks mentioned.

The Securities and Change Board of India (SEBI) will search public feedback on the proposals earlier than finalising the foundations, the sources mentioned, declining to be recognized as they aren’t authorised to talk to the media.

SEBI didn’t reply to an electronic mail from Reuters.

The regulator first flagged the prospect of lighter rules for passive funds in its annual report in August. The small print of these proposals haven’t been beforehand reported.

Belongings beneath administration of passive funds surged sevenfold to 7.9 trillion rupees between July 2019 and September 2023 and now account for 17% of the whole business.

Passive funds replicate indexes, leaving much less discretion for fund managers.

SEBI plans to scale back the capital requirement for passive solely fund homes to about 100 million rupees from 500 million rupees presently, the sources mentioned.

The regulator may also prescribe extra liberal disclosure guidelines for such fund homes.

As an alternative of the present requirement of offering portfolio disclosures each two weeks or each month, passive solely fund homes might want to declare that they’re following a selected index each six months, two of the three sources mentioned.

Guidelines round sustaining name data of fund managers, presently required for all fund homes, might also be eased for passive solely funds, they mentioned.

“With the lighter contact rules, world gamers corresponding to Vanguard, State Road SPDRs, and others who’ve a core focus and experience solely in passive funds, can develop into extra eager to arrange enterprise in India and launch a passive solely fund homes beneath this proposed gentle contact rules,” mentioned Anil Ghelani, head of passive investments and merchandise at DSP Asset Managers, an Indian asset administration agency.

In July, Blackrock, the world’s largest cash supervisor tied up with Mukesh Ambani’s Jio Monetary Providers to launch a fund home in India however others like Vanguard are but to enter the Indian market.

SEBI might additionally chill out guidelines to take away caps on passive funds’ exposures to particular person shares, mentioned the sources.

Current guidelines say that no fund home can make investments greater than 25% of its belongings in a bunch of related entities. A fund can even not maintain greater than 10% of the corporate’s paid-up capital.