Explained: What is MF Lite: Market regulator Securities and Exchange Board of India (SEBI) may soon launch “Mutual Fund Lite (MF Lite)”. Such news is much discussed at the moment. It is being said that the purpose of this new initiative of SEBI is to bridge the gap between mutual funds and Portfolio Management Services (PMS). After all, what is the meaning of MF Lite and how will common investors benefit from it?
What is Mutual Fund Lite?
Mutual Fund Lite (MF Lite) is a new offering of SEBI, whose proposal was revealed through one of its consultation papers in July this year.
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Under this new offering, SEBI will issue a new simplified regulatory framework.
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These MF Lite Regulations will be applicable only for those fund houses which will only manage passive schemes like index funds and ETFs.
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Due to less risk in passive schemes, the rules have been simplified in the MF Lite regulation. For example, removing the requirement of financial experience.
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Fund houses under MF Lite will remain separate from active schemes.
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According to the new rules, old funds will have to separate their passive and active operations to avail the new facility, which will lead to better utilization of resources.
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Under MF Lite, the net worth requirement for mutual fund companies can be reduced from Rs 50 crore to Rs 35 crore.
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Through this initiative, SEBI wants to give an opportunity to new and small players to enter this market. Besides, compliance related problems will also be reduced.
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The new initiative of SEBI is also expected to improve the liquidity of the market, which will also open up new investment opportunities.
Also read: Tremendous tax saving scheme of SBI Mutual Fund! Wealth increased two and a half times in 5 years and 40 times in 20 years
Benefits of MF Lite for investors
It is believed that this new initiative of SEBI will increase cheap and easy investment options for common investors. Especially in funds that will only manage passive schemes like index funds and exchange-traded funds (ETFs).
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The total expense ratio (TER) of existing passive funds averages around 20 basis points (bps).
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The fund management cost i.e. total expense ratio of the passive schemes that will be managed by the fund houses under MF Lite is expected to reduce further.
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With the entry of new players in the market, competition will increase and investors will get more options.
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Small investors will get access to low-cost funds that can track both equity and debt markets.
Also read: ELSS vs Tax Saving FD: Which is better, how much return is getting in which, where to invest?
Will a new era begin in the mutual fund industry?
There is talk that the implementation of ‘MF Lite’ can be announced in the SEBI board meeting to be held on September 30. Although it has not been officially confirmed yet, but if it happens then this step of the market regulator can prove to be the beginning of a new era for the mutual fund industry.
