What is Mutual Fund Lite?

Market regulator SEBI is preparing to introduce MF Lite rules for passive funds. Its objective is to reduce compliance requirements, promote innovation and provide easy entry opportunities to MFs who want to launch only passive schemes.

MF Lite is an easy framework for such mutual funds that will manage only passive schemes. Such as index funds and exchange traded funds. Under MF Lite, fund houses that focus only on passive schemes will get relief from the burden of regulations and their costs will also be reduced.

Who will benefit?

The purpose of Mutual Fund Lite is to make it easier for new entities (companies) in the mutual fund industry, encourage new companies, reduce the responsibility of regulations, increase investment, increase liquidity in the market, facilitate diversification in investments and promote innovation. By easing the rules, many such players can also join this space, who were earlier away from this segment due to difficulty in entry. Apart from this, existing companies will also be able to take advantage of it.

Impact on retail investors

Under the second, i.e. Section 2, existing MFs' passive schemes as well as schemes that can be launched under MF Lite registration will be given ease of compliance, disclosure and relaxation in rules. With the help of MF Lite, retail investors will get an opportunity to invest in many new low-cost passive fund schemes. Such companies will be able to separate their passive fund operations under the MF Lite framework. Two approaches have been adopted under the new framework, under the first, ease of entry and relaxation in rules will be given for MFs wishing to start only passive schemes under MF Lite registration, this has been called Section One.