/financial-express-hindi/media/media_files/HtMGYJV9rVBGByZIeBsF.jpg "Mutual Fund: When will passive hybrid funds be launched? What does this new initiative of SEBI mean?")
SEBI’s New Proposal on Passive Hybrid Funds : The country’s market regulator Securities and Exchange Board of India (SEBI) has recently mentioned passive hybrid funds in one of its consultation papers. In fact, SEBI has proposed to start a new mutual fund category called Passive Hybrid Fund in this document. But being a new proposal, most people do not have complete information about it. SEBI has also sought suggestions from the general public in this matter, but if common investors or people associated with the mutual fund industry want to give their suggestions on this, then first it is necessary to have complete information about SEBI’s new proposal.
What is SEBI’s new proposal
SEBI released a consultation paper on July 1, 2024, which suggests launching a new category of passive hybrid funds. This paper also suggests reducing the entry barrier for new players in the mutual fund market. SEBI has also asked the general public to give their opinion on this proposal by July 22, 2024.
What are passive funds
Passive funds are those mutual funds that track the Sensex, Nifty or any such index. The corpus of a passive fund is used only for investing in companies included in its benchmark index. The ratio of funds to be invested in these companies is also decided according to their weightage in the benchmark index. In contrast, in active funds, the investment decisions are made by the fund manager as per his understanding.
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Hybrid index fund i.e. new category of mutual fund
Currently, passive funds can track either a debt or equity index. That is, a passive fund will either follow an equity index or a debt fund. But SEBI’s latest proposal introduces the concept of hybrid passive funds. According to SEBI’s proposal, these new funds will follow a composite index that will include both equity and debt.
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There will be 3 types of hybrid passive funds
According to SEBI’s proposal, there will be 3 types of hybrid passive funds:
1. Debt-oriented passive funds: The funds falling under this category of hybrid passive funds will invest 25% of their investment in equity and 75% in debt.
2. Balanced Passive Fund: Through these funds, 50% investment will be made in equity and 50% in debt. That is, their corpus will be divided equally between both asset classes.
3. Equity-oriented passive funds: The third category of hybrid passive funds will be of such funds through which 75% investment will be made in equity and 25% in debt.
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Highlights of SEBI’s proposal
- Each fund house will be allowed to launch only one fund in each category.
- The debt index to be used for hybrid passive funds will be decided by the Association of Mutual Funds in India (AMFI). Which will be a constant duration index.
- Equity indices will be broad based, in which stocks of 250 largest companies will be given place according to market cap.
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Signs of important change in the mutual fund industry
However, these proposals of SEBI have been put forward as suggestions, on which the general public has also been asked to give their suggestions by July 22, 2024. But their presentation by the market regulator means that SEBI is very serious about them. If these proposals of SEBI are implemented, then a new way of investment will open in front of those investing in mutual funds.
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