Sebi to identify and regulate 'significant indices' used by MFs

Mumbai: Market indices that are widely used by mutual funds - especially those tracking assets of over ₹20,000 crore - may soon come under closer regulatory scrutiny. The Securities and Exchange Board of India (Sebi) has proposed a framework to identify and regulate such indices.

In a consultation paper released on January 19, the regulator has proposed a framework to identify what it calls 'significant indices'- particularly the benchmarks that are heavily relied upon by domestic mutual fund schemes either for tracking or performance comparison. Public feedback on the proposals is open until February 10.

Under the proposed approach, any index linked to mutual fund schemes with a combined asset base exceeding ₹20,000 crore would qualify as 'significant'. To smooth out short-term fluctuations, Sebi plans to assess this threshold using the average daily AUM over a rolling six-month period, with reviews conducted twice a year as of June 30 and December 31.

The regulator has also spelt out how assets will be allocated when schemes reference more than one benchmark. In such cases, the total AUM will be split proportionately across indices. For composite benchmarks or indices built from other indices, the calculation will be based on the weight of each underlying component.

Applying this yardstick to industry data for the January-June 2025 period, Sebi has drawn up an initial list of 47 indices that would fall within the net. These include equity benchmarks such as the Nifty 50, Nifty Bank, Nifty 500, BSE Sensex and BSE 500, alongside a range of debt and hybrid indices, including Nifty Equity Savings, NIFTY Liquid A-I, CRISIL Hybrid 35+65 -Aggressive, and CRISIL Liquid Overnight.

Once the framework is finalised, entities that manage these benchmarks will have to register with Sebi within six months, as required under the Sebi (Index Providers) Regulations, 2024. Indices that are already overseen by the Reserve Bank of India, including benchmarks formally notified under the RBI Act will remain outside Sebi's ambit.

A key implication of the move is investor protection. Sebi has clarified that its grievance redressal mechanism for index-related issues will be available only for registered providers of 'significant indices'.