SEBI said to plan easing rules governing MFs’ passive funds

Subject : Economy

Section: Capital Market

Context:

India’s markets regulator plans to lower capital and disclosure requirement for fund houses that run passive investment scheme.

About Passive Fund:

A passive fund is an investment vehicle that tracks a market index, or a specific market segment, to determine what to invest in.
Unlike with an active fund, the fund manager does not decide what securities the fund takes on.
This normally makes passive funds cheaper to invest in than active funds, which require the fund manager to spend time researching and analysing opportunities to invest in.

Common type of passive funds are:

What are Mutual Funds?

A mutual fund is an investment vehicle that pools funds from investors and invests in equities, bonds, government securities, gold, and other assets.
Companies that qualify to set up mutual funds, create Asset Management Companies (AMCs) or Fund Houses, which pool in the money from investors, market mutual funds, manage investments and enable investor transactions.
Mutual funds are managed by sound financial professionals known as fund managers, who have the expertise in analyzing and managing investments. The funds collected from investors in mutual funds are invested by the fund managers in different financial assets such as stocks, bonds, and other assets, as defined by the fund’s investment objective.
For the fund’s management, the AMC charges a fee to the investor known as the expense ratio. It is not a fixed fee and varies from one mutual fund to another. SEBI (Securities and Exchange Board of India) has defined the maximum limit of the expense ratio that can be charged on the basis of the total assets of the fund.

About Securities and Exchange Board of India (SEBI)

SEBI is a statutory body established on April 12, 1992 in accordance with the provisions of the Securities and Exchange Board of India Act, 1992.

Background:

Before SEBI came into existence, Controller of Capital Issues was the regulatory authority; it derived authority from the Capital Issues (Control) Act, 1947.
In April, 1988 the SEBI was constituted as the regulator of capital markets in India under a resolution of the Government of India.
Initially SEBI was a non statutory body without any statutory power.
It became autonomous and given statutory powers by SEBI Act 1992.

Aim:

To protect the interests of investors in securities and to promote the development of, and regulate the securities market.
It is the regulator of the securities and commodity market in India owned by the Government of India.

Powers & Functions:

It is a quasi-legislative and quasi-judicial body which can draft regulations, conduct inquiries, pass rulings and impose penalties.
To protect the interests of Indian investors in the securities market.
To promote the development and hassle-free functioning of the securities market.
To regulate the business operations of the securities market.
To serve as a platform for portfolio managers, bankers, stockbrokers, investment advisers, merchant bankers, registrars, share transfer agents and other people.
To regulate the tasks entrusted to depositors, credit rating agencies, custodians of securities, foreign portfolio investors and other participants.
To educate investors about securities markets and their intermediaries.
To prohibit fraudulent and unfair trade practices within the securities market and related to it.
By Securities Laws (Amendment) Act, 2014, SEBI is now able to regulate any money pooling scheme worth Rs. 100 cr. or more and attach assets in cases of non-compliance.