SEBI tweaks stock weightage norms for equity ETFs, index funds; three months given to comply with new rules

In a circular issued to all mutual funds and asset management companies, SEBI said an index used for equity ETFs or index funds should have at least 10 stocks as its constituents.

Press Trust of India January 11, 2019 13:14:24 IST
SEBI tweaks stock weightage norms for equity ETFs, index funds; three months given to comply with new rules
  • For a sectoral or thematic index, no single stock can have more than 35 percent weight in the index

  • Cumulative weightage of top three constituents of the index cannot be more than 65 percent

  • Individual constituent of the index should have a trading frequency of at least 80 percent

New Delhi: To help mitigate portfolio concentration risks in equity exchange traded funds (ETFs) and index funds, capital market regulator Securities and Exchange Board of India (SEBI) on Thursday asked fund houses to have a wider basket of stocks while keeping in check the weightage of top stocks of the index.

In a circular issued to all mutual funds and asset management companies, SEBI said an index used for equity ETFs or index funds should have at least 10 stocks as its constituents.

SEBI tweaks stock weightage norms for equity ETFs index funds three months given to comply with new rules

Representational image. Reuters.

For a sectoral or thematic index, no single stock can have more than 35 percent weight in the index, while this cap would be 25 percent for other indices.

Besides, the cumulative weightage of top three constituents of the index cannot be more than 65 percent, SEBI said.

The regulator further said the individual constituent of the index should have a trading frequency of at least 80 percent and an average impact cost of 1 percent or less over previous six months.

SEBI said any ETF or Index Fund seeking to replicate a particular index has to ensure that such index complies with these norms, which the regulator said aims to address the risk related to portfolio concentration in ETFs and Index Funds.

The funds would need to evaluate and ensure compliance to these norms at the end of every calendar quarter and make public on their website the updated constituents of the indices at all points of time.

The issuers of all existing equity ETFs and Index Funds would need to comply with the new norms within three months. The new funds would need to submit their compliance status to SEBI before being launched.

Updated Date:

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