SEBI preparing for major changes in Mutual Funds, investors will get more options

Indian stock market regulator Securities and Exchange Board of India (SEBI) has proposed to add five new categories of mutual fund companies under ESG. At present, mutual funds are permitted to launch an ESG scheme under the thematic category only under equity schemes.

The five new categories are Exclusion, Integration, Best-in-Class, Positive Screening, Impact Investing, and Sustainable Objectives. As per SEBI’s proposal, each AMC will be allowed to launch one fund in each of the five new sub-categories. If this proposal is implemented, then investors will get more options than before.

SEBI preparing for major changes in Mutual Funds, investors will get more options
SEBI preparing for major changes in Mutual Funds, investors will get more options

SEBI in its consultation letter said that AMCs should strive to keep a higher proportion of assets under the ESG theme and make appropriate disclosures.

Up to 80 percent can be invested in one theme

Under the new category of ESG, AMC will be able to invest up to 80 percent in a single theme. Also, the rest of the money should be invested according to the scheme.

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SEBI preparing for major changes in Mutual Funds, investors will get more options
SEBI preparing for major changes in Mutual Funds, investors will get more options

What are the rules for investing in the category?

1, In the ESG exclusions scheme, SEBI has suggested that mutual funds should exclude certain ESG securities based on activity, business practice, or business segment.

2, An ESG integration scheme should consider ESG-related factors that are critical to risk and return while keeping traditional financial factors in mind.

3, ESG best-in-class and positive screening schemes should invest in companies that outperform their peers.

4, ESG impact investing schemes must seek and evaluate a non-financial impact and its impact is being measured and monitored.

5, The objective of the ESG sustainable objectives scheme is to invest in those sectors, industries, and companies. Where investors can benefit in the long run.

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