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Hybrid Passive Funds - Hybrid ETFs/ Index Funds

Hybrid funds invest in a mix of equities and debt securities. They seek to find a ‘balance’ between growth and income by investing in both equity and debt. India already has active funds in the different hybrid categories, but as per the current regulations, passive funds have to be based on either an equity index or a debt index. There were no hybrid funds specific to passive schemes. 

Introduction of Hybrid Passive Funds - Hybrid ETFs/ Index Funds

Effective March 16, 2025, Asset Management Companies (AMCs) can launch a new class of passive fund i.e., Hybrid passive funds which shall replicate a composite index comprising equity and debt and enable investors to invest in a single product having exposure to equity and debt instruments in passive format.

Hybrid ETF / Index Fund shall mean an Exchange Traded Fund (ETF) / Index Fund which tracks an index/ indices containing a combination of equity and debt constituents.

Categories of Hybrid Passive Schemes:

AMCs shall launch hybrid passive schemes only in the following 3 categories:

Scheme Category

Asset Allocation Range

Remarks

Balanced Hybrid Passive Schemes

Equity: (40%-60%)
Debt: (40%-60%)

Equity/Debt Asset Allocation can range between 40%-60%. This means that the rest of the asset allocation will be occupied by Debt/Equity and vice versa

Equity Oriented Passive Schemes

Equity: (65%-80%)
Debt: (20%-35%)

Equity Asset Allocation can range between 65%-80% and the rest of the asset allocation will be occupied by Debt.

Debt Oriented Passive Schemes

Equity: (20%-35%)
Debt: (65%-80%)

Debt Asset Allocation can range between 65%-80% and the rest of the asset allocation will be occupied by Equity.

The AMCs shall be allowed to launch one ETF and one Index Fund for each category as mentioned in the table above.

Hybrid ETFs shall disclose the indicative NAV (iNAV) at least four times a day i.e., opening and closing iNAV and at least two times during the intervening period with minimum time lag of 90 minutes between the two disclosures.

The underlying index to be tracked by such hybrid funds shall be the composition of an equity and a debt index from the list of equity and debt indices as permitted by SEBI under the MF Lite framework issued on December 31, 2024.


Source:
SEBI Circular SEBI/HO/IMD/PoD2/P/CIR/2024/183  dated December 31, 2024 on Mutual Funds Lite (MF Lite) framework for passively managed schemes of Mutual Funds


Mutual Fund investments are subject to market risks, read all scheme related documents carefully

Please note that this article or document has been prepared on the basis of internal data/ publicly available information and other sources believed to be reliable. The information contained in this article or document is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party in any manner. The article does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article or document.

Published on Jan 07, 2024

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