SEBI plans to make nomination optional for joint MF portfolios

Capital market regulator SEBI has excluded investment made through ETFs and index funds from the regulations on exposure to a single stock of own group companies and nomination has been made option for joint investments in mutual fund schemes.

In a consultation paper to promote ease of doing business among MFs, SEBI on Friday allowed single fund manager to manage commodity and overseas investment. The recommendations were made by the working group constituted by SEBI to promote the ease of doing business and reduce the compliance burden.

Investors and market participants have to submit their feedback by March 15.

Passive funds

Per current regulations, mutual fund schemes investments in sponsors group companies are capped at 25 per cent of net assets. Further, a single stock cannot have over 35 per cent weight in the underlying index for a sectoral/ thematic index-based passive fund.

Considering that for certain sectoral indices, the exposure to single issuer may be more than 25 per cent and as passive funds are required to replicate respective underlying index, the working group on ease of doing business has recommended that the existing sponsor group exposure limit at 25 per cent may be relaxed.

Subsequently, SEBI has proposed that equity-oriented ETFs and index funds, based on widely tracked and non-bespoke Indices, may be excluded from the requirement of investment limit of 25 per cent in group companies of sponsors so that investments may be made in accordance with the weightage of the constituents of the underlying index avoiding any unintended tracking error.

SEBI had recently extended the deadline for mandatory nomination for investment in mutual fund schemes to June. The folio will be frozen for debit if the nomination are not provided beyond the deadline.

However, in case of jointly held folios, the surviving holder in a jointly held folio takes precedence over nominee during transmission of units.

Further, the process of nomiantion is put on hold if all the unit holders are not available at the time of nomination and this has caused considerable delay in the process. Following this, SEBI has made nomination optional for jointly held folios.

Currently, mutual funds have to appoint a dedicated fund managers for commodity and overseas investments leading to higher cost of operations. Accepting the working group recommendations, SEBI has now proposed to make dedicated fund manager optional for commodity and overseas investemnts provided AMCs ensure competency of the fund manager.

The board of the AMCs will be responsible for ensuring compliance and reporting regarding the same to trustees, on a periodic basis, said SEBI.