Passive funds allowed 35% group-level exposure in 21 indices: Sebi

Passive funds benchmarked to 21 indices will be allowed a higher 35 per cent group-level exposure, the market regulator Sebi said in a circular on Monday. 

For other indices, the group-level exposure will be capped at 25 per cent. The regulator said the higher cap will be applicable only on passive funds or primary benchmarks for actively managed funds with collective assets under management (AUM) of Rs 20,000 crore. Industry body Amfi will publish the list of indices that meet this threshold on a half-yearly basis—ending March and September.

“The list of such indices shall be updated by Amfi and published on its website by April 15 and October 15 respectively every year, after seeking Sebi’s approval,” the circular said. Currently, 14 Nifty indices and seven indices compiled by the BSE have cumulative AUM of over Rs 20,000 crore. 

The new regulations will help passive funds reduce the tracking error in funds where single group exposure exceeds the current cap of 25 per cent. To avoid manipulation, Sebi has kept out bespoke indices or the ones which are not widely followed from the higher exposure rule.