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Market Regulator SEBI Issues New Rules for Constitution

Published on May 24, 2022
Current Context: To boost Exchange Traded Funds the Securities exchange board of India has announced a change in the set of rules for passive funds.
Market Regulator SEBI Issues New Rules for Constitution
  • SEBI has constituted a Working Group that consists of various stakeholders from the passive fund's domain like AMCs, mutual fund trustees, and stockbrokers. On basis of the recommendation of the committee, SEBI has issued New norms for Passive funds.
  • In lieu of debt ETFs and index funds, the market regulator SEBI capped group-level exposure at 25% The cap will not apply when it comes to investment in public sector entities.
  • SEBI has determined that for an index that has at least 80% weight of corporate debt securities, a single issuer should not have more than 15% weight in the index in respect of AAA securities, and if its AA securities then it should not be more than 12.5% in case of A it should be no more than 10%.
  • Sebi has also informed the investors that they can directly approach the AMC for reclamation of units of Exchange Traded Funds for transactions of up to Rs 25 crore without any exit pressure.
  • The minimum subscription amount has also been decided at the time of the New Fund Offer (NFO) for debt ETFs or index funds it will be 10crore and for other ETFs or index funds, it will be Rs 5 crore.
  • As per the SEBI circular, this new framework will come into effect from July 1 and will apply to all existing ETFs and index funds.
  • For all asset management companies (AMC) there shall be at least two market makers (MMs) for ETFs who ensure continuous liquidity on the stock exchange platform.
  • Sebi has also allowed AMCs to launch passive equity-linked saving schemes (ELSS) through an index fund. The investment universe of such schemes will be restricted to the top 250 companies by market cap.
  • Static Part
  • Passive Funds:
    • It is an investment segment that tracks a market index and determines what to invest in, where the fund manager has no role in selecting the stocks on your behalf. Instead, the Exchange Traded Funds simply copy an index and try to accurately reflect its performance.
  • Exchange-Traded Funds:
    • It is a kind of market security like mutual funds associated with some price where it can easily buy and sold in the market. In simple words, in an ETF, one can buy and sell units at the prevailing market price on a real-time basis during market hours.

Questions:

Q.1 As per the new rules of SEBI, the minimum subscription required at the time of the New Fund Offer for debt ETFs is?
a. 5 crore
b. 15 crore
c. 10 crore
d. 2 crore

Q.2 According to the new notification of SEBI the new framework for all ETFs and Index funds will come into effect from _________?
a. 1st August
b. 1st July
c. 1st September
d. 1st June
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