The Securities and Exchange Board of India (SEBI) on January 10, 2019 has issued Portfolio Concentration Norms for Equity Exchange Traded Funds (ETFs) and Index Funds.
· The norms are as under:
(a) The index shall have a minimum of 10 stocks as its constituents.
(b) For a sectoral/ thematic Index, no single stock shall have more than 35% weight in the index. For other than sectoral/ thematic indices, no single stock shall have more than 25% weight in the index.
(c) The weightage of the top three constituents of the index, cumulatively shall not be more than 65% of the Index.
(d) The individual constituent of the index shall have a trading frequency greater than or equal to 80% and an average impact cost of 1% or less over previous six months.
Accordingly, any ETF/ Index Fund that seeks to replicate a particular Index shall ensure that such index complies with the aforesaid norms.
· Compliance Procedure:
a. The norms shall be applicable to all ETFs/ Index Funds tracking equity indices.
b. The ETF/ Index Fund issuer shall evaluate and ensure compliance to the aforesaid norms for all its ETFs/ Index Funds at the end of every calendar quarter.
c. The ETF/Index Fund issuer shall ensure that the updated constituents of the Indices (for all its ETFs/ Index Funds) are available on the website of such ETF/Index Fund issuers at all points of time.
a. All existing Equity ETFs/ Index Funds in the market: The issuers of all the existing Equity ETFs/ Index Funds are required to ensure adherence to the new norms by all the ETFs/ Index Funds within a period of three months from the date of issuance of this circular.
b. All the Equity ETFs/ Index Funds where SEBI has issued final observations on the Scheme Information Document, but have not yet been launched: The issuers shall submit the compliance status vis-à-vis these norms to SEBI before launching such ETFs/ Index Funds.
[Circular No. SEBI/HO/IMD/DF3/CIR/P/2019/011]