SEBI has formed working groups for different areas related to capital markets. The working group formed for mutual funds has suggested relaxation in the rule of maximum 25 percent investment in group companies in case of passive funds.
Market regulator SEBI has introduced a proposal, which if implemented may increase the returns of ETFs and index funds. In fact, SEBI has proposed to exempt equity oriented passive funds from the rule of maximum 25 per cent investment in group companies. Currently, a maximum of 25 per cent investment is allowed in group companies through equity or passive equity schemes. ETFs and index funds are passive funds. Therefore, if this proposal of SEBI is implemented, ETFs and passive funds will be allowed to invest more than 25 percent in group companies.
Consultation paper came on 23 February
SEBI believes that index funds and ETFs should be allowed to invest in group companies according to their benchmark indicators. Due to this, the returns of ETFs and index funds can be equal to their benchmark. It is important to keep in mind that a limit of 25 percent will remain applicable for active equity funds to invest in group companies. SEBI has released this consultation paper on 23 February.
Market regulator appointed several working groups
SEBI has formed working groups for different areas of capital markets. They have been asked to give such suggestions which will make it easier for others including mutual funds to do business. According to the current rules, mutual funds are not allowed to invest as much as they want in the shares of any company. For example, a mutual fund scheme cannot invest more than 10 percent of its corpus in the stocks of any one company. Similarly, its total investment in any one group of companies cannot exceed 25 percent.
Dedicated fund manager is not necessary for different assets
SEBI has also presented another important proposal. Once implemented, the need for a separate and dedicated fund manager for gold, silver (and other commodities) and foreign investment in one scheme will be eliminated. SEBI has said that having dedicated fund managers for a scheme that invests in different assets increases the cost of that scheme. These dedicated fund managers are in addition to the regular fund managers. Apart from this, fund houses already have dedicated research analysts who monitor different asset classes.
Rules for nomination of jointly held folios
The market regulator has also proposed to make nomination optional for jointly-held mutual fund folios. The working group formed by SEBI has said in its suggestion that since the second holder has more weightage than the nominee, there is no need to make nomination mandatory for jointly-held folios. It is believed that after the implementation of this proposal, joint folio account holders will be freed from the process of nomination.
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