SEBI moves on ETF; Issues new norms for Passive Funds

The Securities and Exchange Board of India(SEBI) Issued a Circular on Development of Passive Funds. The provisions of the said circular are applicable with effect from July 01, 2022.

The Circular Stated, “Clause 2(IV)(A) of the aforesaid circular prescribed that in respect of units of ETFs, direct transaction with AMCs shall be facilitated for investors only for transactions above a specified threshold of INR 25 Cr.”

An exchange-traded fund (ETF) is a type of pooled investment security that operates much like a mutual fund. In most cases, ETFs will follow a specific index, industry, commodity, or other asset; however, unlike mutual funds, ETFs can be bought or sold on a stock exchange in the same way as a conventional stock.

Subsequently, feedback was received from stakeholders expressing certain challenges with respect to implementation of the above clause. Considering the same, it has been decided that the applicability of clause 2(IV)(A) of the circular shall be November 01, 2022.

This circular is issued in exercise of the powers conferred under Section 11 (1) of the Securities and Exchange Board of India Act 1992, read with the provision of Regulation 77 of SEBI (Mutual Funds) Regulation, 1996 to protect the interests of investors insecurities and to promote the development of, and to regulate the securities market.