No changes in derivatives framework, SEBI approves MF Lite, new asset class for HNIs

The Securities and Exchange Board of India ( SEBI ) held its much-anticipated Board meeting today, but market participants were left waiting as the regulator did not announce any changes to the index derivatives framework, despite earlier proposals aimed at boosting market stability. However, SEBI introduced two key developments—approving a new asset class for high-net-worth individuals (HNIs) and announcing the Mutual Funds Lite (MF Lite) framework for passively managed mutual funds.

No Update on Derivatives Framework

The market had expected SEBI to implement the tighter derivatives regulations that were proposed in a consultation paper released in July 2024. These included increasing contract sizes by up to four times, upfront collection of options premiums, and a reduction in weekly contracts. Currently, index-based contracts can expire daily, but the regulator proposed limiting weekly contracts to one index per exchange, resulting in two expiries per week.

Despite this anticipation, no updates on the derivatives framework were provided, leaving uncertainty about when or if these regulations will be implemented.

Introduction of the MF Lite Framework for Passive Funds

In a positive move, SEBI announced a liberalised Mutual Funds Lite (MF Lite) framework tailored for passively managed mutual funds. The new framework is designed to lower entry barriers and ease the regulatory burden on fund houses that offer only passive investment schemes.

In its press release following the Board meeting, SEBI outlined the key features of the MF Lite framework:

• Relaxed Eligibility Criteria for Sponsors: Barriers related to net worth, track record, and profitability will be lowered, allowing more entities to enter the mutual fund space.
• Simplified Responsibilities for Trustees: The framework will ease compliance burdens for trustees, encouraging new market entrants.
• Streamlined Approval and Disclosure Process: Amendments will streamline the approval process and reduce disclosure obligations, making it easier for Asset Management Companies (AMCs) to operate in the passive fund segment.

This move follows SEBI ’s July consultation paper, which argued that fund houses offering only passive schemes do not require the same level of regulatory oversight as those managing active funds. SEBI Chairperson Madhabi Puri Buch had hinted at the launch of MF Lite during a recent AMFI Board meeting.

New Asset Class for High-Net-Worth Individuals

SEBI also introduced a new asset class for high-net-worth individuals (HNIs), enabling them to invest in riskier regulated products. The minimum investment for this asset class is set at ₹10 lakh, targeting sophisticated investors with a higher risk appetite. The move aims to offer HNIs more diversified opportunities while maintaining a level of caution due to the inherent risks involved.