SEBI Mutual Fund Lite framework (India)

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The SEBI Mutual Fund Lite (MF Lite) framework is a simplified registration and operational regime introduced by SEBI in 2024 to encourage new entrants to establish asset management companies (AMCs) that offer exclusively passive investment products, index funds and Exchange-Traded Funds (ETFs), without the full regulatory burden applicable to active fund management. The MF Lite framework was finalised through SEBI’s circular and amendments to the SEBI (Mutual Funds) Regulations, 1996 in 2024, following consultation papers issued in 2022 and 2023. The primary policy objective is to increase competition in India’s passive fund segment (which has historically had fewer participants than the active segment), lower costs for investors, and enable fintech, technology, and financial services companies with strong distribution capabilities to enter the market without meeting the full net worth and track record requirements of traditional AMC registration. The framework is administered by the SEBI Investment Management Department.

Policy context

India’s mutual fund industry by AUM is dominated by the active fund management segment, though passive AUM has grown rapidly from under 5% (2017) to approximately 15–18% of total AUM (2024). However, the number of AMCs offering passive products remains limited: most passive products are subsidiaries of large active fund houses, which also manage active schemes.

SEBI identified three barriers to new passive-only entrants:

  1. Net worth requirement: ₹150 crore (existing AMC minimum) is a significant capital requirement for a passive-only operator with lower revenue margins.
  2. Track record requirement: Five years in financial services, a barrier for fintech, technology, or newer financial services entities.
  3. Operational complexity: Active fund regulation imposes compliance, reporting, and governance norms designed for complex active strategies, many of which are unnecessary for a rule-based passive manager.

Core provisions of MF Lite

Eligibility (who may register under MF Lite)

An entity may apply under MF Lite if:

  • It commits to operating only passive schemes (index funds and ETFs tracking SEBI-approved indices).
  • It satisfies a reduced net worth requirement of ₹35 crore (as against ₹150 crore for active AMCs).
  • It has a track record of at least three years in financial services, technology services to financial services, or distribution of mutual funds/securities.
  • Alternatively, it may qualify if it is a subsidiary or JV of an entity that meets the three-year financial services track record.
  • It satisfies fit and proper criteria (same as for active AMCs, under SEBI (Intermediaries) Regulations, 2008).

The sponsor contribution requirement is proportional: the MF Lite sponsor must contribute 40 per cent of the AMC’s net worth (same percentage as active AMC sponsors, but on the lower net worth base of ₹35 crore).

Permissible schemes

A MF Lite AMC may only launch:

  • Index funds (tracking domestic indices on SEBI’s approved index list).
  • ETFs (tracking the same indices).
  • Fund of funds investing in passive funds (domestic and, within the overseas investment cap, international passive funds).

Active equity, active debt, hybrid, or solution-oriented schemes are not permitted under MF Lite.

Operational simplifications

MF Lite AMCs benefit from reduced regulatory burden:

  • Fewer mandatory personnel: Full-time CIO, fund manager, compliance officer required; some AMC-level positions (head of equity research, credit risk team) that are mandatory for active AMCs are not required.
  • Simplified SID: The SID template for passive schemes is shorter than for active schemes; investment strategy and stock selection disclosures are replaced by index methodology references.
  • Reduced trustee composition requirements: The one-third independent director requirement remains, but the trustee board may be smaller (minimum three members rather than six for active AMCs).
  • TER norms: MF Lite scheme TERs are subject to the same index fund/ETF cap (maximum 1.00% TER) as active AMC passive schemes.

Prohibited activities

MF Lite AMCs:

  • May not manage active schemes, segregated portfolios (side-pockets), or SIFs.
  • May not engage in lending/borrowing beyond overnight securities.
  • May not manage pension funds or insurance-linked schemes.

Graduation to full AMC status

A MF Lite AMC that builds a track record of three or more years and meets the full net worth requirement (₹150 crore) may apply to upgrade to full AMC status, subject to SEBI approval, trustee confirmation, and compliance with all Regulation 7 eligibility criteria.

Investor protection under MF Lite

Despite the simplified structure, all core investor protection norms apply to MF Lite schemes:

Market entry prospects

As of May 2026, several entities, including fintech platforms, large brokerage houses, and international asset managers seeking a lower-cost Indian entry vehicle, have expressed interest in MF Lite registration. The first MF Lite AMC registrations were expected in 2025–2026.

Relationship to SIF framework

MF Lite AMCs are explicitly excluded from launching SIF strategies. The SIF framework requires a full active AMC registration with at least three years of track record and ₹150 crore net worth.

See also

References

  1. SEBI Circular SEBI/HO/IMD/IMD-PoD-1/P/CIR/2024/…, Mutual Fund Lite framework (2024).
  2. SEBI Consultation Paper on Ease of Doing Business for New AMCs, 2022.
  3. SEBI Consultation Paper on MF Lite, 2023.
  4. SEBI (Mutual Funds) Regulations, 1996, as amended 2024.
  5. SEBI Master Circular SEBI/HO/IMD/IMD-PoD-1/P/CIR/2024/137, 27 May 2024.

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