SEBI releases Norms for Debt Exchange Traded Funds

Dec 02, 2019 | by Avantis RegTech Legal Research Team


The Securities Exchange Board of India (SEBI) on November 29, 2019, has issued Circular regarding the Norms for Debt Exchange Traded Funds (ETFs) and Index Funds. The norms shall be adopted by the Asset Management Companies (AMCs).

Following are the norms for Debt Exchange Traded Funds (ETFs): -

1.  No single issuer will have more than 15% weight in the index.

2.  The index will have a minimum of eight issuers and the rating of the constituents of index should be investment grade.

3.  The constituents of the index shall have a defined credit rating as well as maturity as specified in the methodology of the index.

4.  If the credit rating of an issuance falls below the investment grade or rating mandated in the index methodology, rebalancing by debt ETFs or index funds should be done within a period of five working days.

5.  ETFs or index funds will have to replicate the index completely as per the replication method and the fund managers need to replicate as close as possible each company's weight in the index;

6.  If replication is not workable due to non-availability of issuances of the issuer forming part of the index then the debt ETFs or index funds shall be allowed to invest in other issuances issued by the same issuer having deviation of 10 per cent from the weighted average duration of issuances forming part of the index, subject to single issuer limit;

7.  The duration of debt ETF or index fund need not deviate 5% from the duration of the index at aggregate portfolio level.

8.  The issuer of such debt ETF needs to ensure compliance to these norms for rebalancing at the end of every calendar quarter and are required to ensure adherence to the new norms within a period of three months;

9.  In case SEBI has issued final observations regarding ETFs but has not yet launched them, then the issuers will have to submit the compliance status with respect to these norms to SEBI before launching such funds.

The norms shall not be applicable to debt ETFs which track the debt indices having constituents as government securities, treasury bills and tri-party repo.

[SEBI/HO/IMD/DF3/CIR/P/2019/147]


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