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On December 31, 2024, the Securities and Exchange Board of India (SEBI) launched the 'Mutual Funds Light' (MF Light) framework to encourage passive mutual fund schemes.

This framework is expected to benefit retail investors and new asset management companies (AMCs) by simplifying investment processes, reducing costs, and enhancing transparency. Let’s delve into what the MF Light framework entails and why it holds significance for investors.

What is the MF Light Framework?

The MF Light framework is designed specifically for passive mutual fund schemes. These include index funds, gold and silver ETFs, and schemes based on government securities (G-Secs).

In its first phase, the framework covers schemes tied to domestic passive indices with total assets under management (AUM) of Rs 5,000 crore or more. This framework will remain applicable each year until December 31. For foreign investments, only indices with total assets exceeding $20 billion will qualify.

Benefits for Investors

The MF Light framework simplifies the process of investing in mutual funds, paving the way for new players to enter the industry. Over the past 2–3 years, several fintech startups have entered the market with plans to launch only passive schemes.

SEBI’s initiative is expected to benefit both companies and investors by increasing market liquidity, expanding the range of schemes, and lowering costs due to heightened competition. 

Additionally, investors will gain opportunities to invest in gold and silver ETFs and foreign indices, enabling a more diversified portfolio.

Impact on India’s Mutual Fund Market

India’s passive mutual fund market, with a total AUM of Rs 11.03 lakh crore as of November 2024, is poised for rapid growth under this framework. Gold and silver ETFs, which have gained significant popularity in recent years, are now prioritised under MF Light.

Wrapping Up

SEBI’s MF Light framework is a groundbreaking initiative that benefits both investors and the mutual fund industry. It offers investors cost-effective and transparent options while creating opportunities for small AMCs and new entrants.

However, investors are advised to thoroughly evaluate the structure, risks, and returns of MF Light schemes before making investment decisions.