With a vision to ensure that the index funds and exchange-traded funds (ETF) replicate their benchmark indices to the fullest extent, the Securities and Exchange Board of India (SEBI) has proposed to remove a minor impediment for them.

As per the proposal, the restriction to invest up to 25% (of their net assets) in group companies or sponsors has been sought to be removed. Index funds and ETFs can invest in listed companies’ shares that belong to group companies of the sponsor, to the extent that their benchmark indices allow.

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Notably, SEBI constituted working groups to recommend steps, in various capital market areas that it oversees, to make it easier for firms to do their business.

The proposal is part of a Sebi consultation paper that looks to enhance the ease of doing business for mutual funds (MFs).

No scheme can invest in shares of any single scrip over 10% of its Net Asset Value (NAV). The total exposure of the scheme to listed equity shares of group companies of the sponsor must not exceed 25% of its net assets.

SEBI has also proposed to relax the requirement of having a separate and dedicated fund manager in a scheme to oversee gold, silver and other commodities, and foreign investments.

SEBI has noted that having dedicated managers in schemes that diversify in such assets over and above the usual fund managers of those schemes- might be a costly affair.

Further, the regulator has proposed to make nominations optional for jointly-held mutual fund folios. The working group- set up by SEBI to suggest ease of doing business for mutual funds has suggested to SEBI that since the second holder takes legal precedence over a nominee in terms of being a legal heir, nominations needn’t be made mandatory for jointly-held folios.

This will also solve the botheration of having to take all joint holders’ consent to approve or change a nominee; a requirement that the working group noted was onerous, it said.