{"id":136269,"date":"2024-10-08T20:07:12","date_gmt":"2024-10-08T14:37:12","guid":{"rendered":"https:\/\/pwonlyias.com\/stage\/?post_type=current-affairs&#038;p=136269"},"modified":"2025-02-13T15:59:57","modified_gmt":"2025-02-13T10:29:57","slug":"passive-mutual-funds","status":"publish","type":"current-affairs","link":"https:\/\/pwonlyias.com\/stage\/current-affairs\/passive-mutual-funds","title":{"rendered":"Passive Mutual Funds"},"content":{"rendered":"<p><span style=\"font-weight: 400;\"><a href=\"https:\/\/pwonlyias.com\/stage\/sebi-securities-and-exchange-board-of-india\/\" target=\"_blank\" rel=\"noopener\">Securities and Exchange Board of India (SEBI)<\/a> introduced the liberalised <\/span><b>Mutual Funds Lite (MF Lite) <\/b><span style=\"font-weight: 400;\">framework for passively managed schemes.\u00a0<\/span><\/p>\n<h2><span style=\"font-size: 18pt;\"><b>About Mutual Funds Lite (MF Lite)<\/b><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">It presents diversified investment opportunities for retail investors through less risky schemes and enhance market.\u00a0<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Easier Entry for New Players<\/b><span style=\"font-weight: 400;\">: It lowers entry barriers, allowing more companies to offer passive mutual funds by<\/span><b> relaxing net worth, profitability, and track record requirements.<\/b><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Simplified Role for Trustees: <\/b><span style=\"font-weight: 400;\">SEBI reduces oversight for trustees managing passive funds, lowering compliance costs due to the simpler nature of passively managed schemes.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Faster Approval Process:<\/b><span style=\"font-weight: 400;\"> It streamlines the approval process, cutting down on paperwork, enabling companies to launch funds faster.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Options for Existing AMCs:<\/b><span style=\"font-weight: 400;\"> Existing companies can either manage passive funds under MF Lite or continue with their current setup, benefiting from regulatory flexibility.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Impact on Investors:<\/b><span style=\"font-weight: 400;\"> Investors will gain access to more passive investment products, potentially improving returns, lowering costs, and boosting liquidity.<\/span><\/li>\n<\/ul>\n<h2><span style=\"font-size: 18pt;\"><b>What are Mutual Funds?<\/b><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">A mutual fund is a pool of money managed by a professional Fund Manager. <\/span><span style=\"font-weight: 400;\">It is a trust that collects money from a number of investors who share a common investment objective and invests the same in equities, bonds, money market instruments and\/or other securities.<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">They are ideal for investors who either lack large sums for investment, or for those who neither have the inclination nor the time to research the market, yet want to grow their wealth.<\/span><\/li>\n<\/ul>\n<p style=\"text-align: center;\"><span class=\"vc_button\"><a href=\"https:\/\/store.pw.live\/govt-entrance-exams\/upsc-books\/upsc-modules?utm_source=SEO&#038;utm_medium=PW+Live&#038;utm_campaign=UPSC+Modules\" target=\"_blank\" rel=\"noopener\"><span style=\"font-weight: 400;\">Check Out UPSC Modules From PW Store<\/span><\/a><\/span><\/p>\n<h2><span style=\"font-size: 18pt;\"><b>About Passive Mutual Fund<\/b><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">Passive mutual funds are investment funds that aim<\/span><b> to replicate the performance of a specific market index<\/b><span style=\"font-weight: 400;\"> rather than trying to outperform it<\/span><\/p>\n<ul>\n<li><span style=\"font-weight: 400;\">They usually track a benchmark index, say <\/span><b>BSE Sensex<\/b><span style=\"font-weight: 400;\"> or<\/span><b> Nifty50,<\/b><span style=\"font-weight: 400;\"> and<\/span><b> try to mimic their performance.\u00a0<\/b>\n<ul>\n<li><b>Actively managed funds: <\/b><span style=\"font-weight: 400;\">Fund managers make buy-and-sell decisions based on market analysis and research<\/span><\/li>\n<li><b>Passive mutual funds <\/b><span style=\"font-weight: 400;\">:Follow a buy-and-hold strategy based on an index.<\/span><\/li>\n<\/ul>\n<\/li>\n<li><b>Pros and Cons of Passive MF:<\/b><\/li>\n<\/ul>\n<div class=\"vc_table_green\"><\/p>\n<table style=\"width: 99.8996%;\">\n<tbody>\n<tr>\n<td style=\"width: 48.4918%; text-align: center;\"><b>Pros<\/b><\/td>\n<td style=\"width: 53.3574%; text-align: center;\"><b>Cons<\/b><\/td>\n<\/tr>\n<tr>\n<td style=\"width: 48.4918%;\">\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Easily tracked:<\/b><span style=\"font-weight: 400;\"> Since the underlying constituents of the benchmark indices are publicly available, passively managed schemes can be easily tracked and therefore less risky.<\/span><\/li>\n<\/ul>\n<\/td>\n<td style=\"width: 53.3574%;\">\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>No Outperformance: <\/b><span style=\"font-weight: 400;\">Designed to match, not to beat, the market. It limits the potential for higher returns that active fund managers might achieve.<\/span><\/li>\n<\/ul>\n<\/td>\n<\/tr>\n<tr>\n<td style=\"width: 48.4918%;\">\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Predictability:<\/b><span style=\"font-weight: 400;\"> Since they follow an index, the returns of passive funds are predictable, reflecting the overall market or sector they track.<\/span><\/li>\n<\/ul>\n<\/td>\n<td style=\"width: 53.3574%;\">\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Lack of Flexibility: <\/b><span style=\"font-weight: 400;\">Must stick to their index even during market downturns, which may expose investors to losses.<\/span><\/li>\n<\/ul>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p><\/div>\n<div class=\"vc_table_green\"><\/p>\n<table style=\"width: 100.043%;\">\n<tbody>\n<tr>\n<td style=\"width: 130.811%; text-align: center; border-style: solid; border-color: #000000;\" colspan=\"2\"><span style=\"font-size: 18pt;\"><b>Must Read<\/b><\/span><\/td>\n<\/tr>\n<tr>\n<td style=\"width: 50.5357%; 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