SEBI’s MF Lite: Simplifying Passive Funds in India
By Market Desk
SEBI introduces ‘MF Lite’ framework, easing passive mutual fund regulations in India. Lower sponsor net worth, increased competition, and reduced investor costs expected.
The Securities and Exchange Board of India (SEBI) has unveiled its “MF Lite” framework, a new initiative designed to streamline regulations for passively managed mutual funds across India.
Integrated into the SEBI (Mutual Funds) Regulations, 2026, this framework aims to diminish barriers for new asset management companies and foster enhanced liquidity and diversification within the nation’s passive fund sector.
Relaxed Sponsorship Requirements
Under the MF Lite framework, SEBI has introduced significant relaxations regarding the minimum net worth for sponsors of passive funds.
This move is intended to broaden the pool of eligible entities entering the passive fund space.
- The minimum net worth requirement for sponsors is now Rs 50 crore.
- This can further decrease to Rs 25 crore after five consecutive profitable years.
- Private equity firms are also eligible to act as sponsors, provided they have at least Rs 2,500 crore in committed capital and five years of experience.
Operational Simplification for Fund Houses
Fund houses operating under the MF Lite framework will experience streamlined administrative and compliance procedures.
These operational efficiencies are expected to reduce the burden on existing and new players.
- Scheme Information Documents will be expedited, requiring only annual updates.
- Fund houses are exempt from filing a separate Key Information Memorandum.
- Administrative tasks for trustees and daily compliance are simplified.
- Existing fund houses can transition their passive schemes into a distinct, lower-cost MF Lite entity.
Boosting Investor Choices and Reducing Costs
The changes introduced by the MF Lite framework are designed to directly benefit retail investors.
By expanding choices and reducing costs, SEBI aims to make passive investing more accessible.
The reduced compliance and operational costs for fund houses are anticipated to translate into lower total expense ratios (TERs) for investors, thereby decreasing overall investment costs.
Growth in India’s Passive Investing Landscape
The introduction of MF Lite coincides with a notable surge in the popularity of passive investing in India.
This framework is set to further support the growth trajectory observed in the sector.
- Assets Under Management (AUM) for passive funds reached Rs 14.11 lakh crore by March 2026.
- This represents a substantial 23.1% year-on-year growth.
- Investor folios increased by 37.7%, totaling 57.1 million.
SEBI’s MF Lite framework is poised to reshape India’s passive mutual fund industry, fostering a more accessible and cost-efficient environment for both fund managers and retail investors.