India clears rules for passive fund houses, introduces new asset class

MUMBAI (Reuters) -India's markets regulator on Monday approved a new asset class, allowing investors to take higher risks through a regulated product.

The Securities and Exchange Board of India (SEBI) said in a press statement that asset management companies can now offer riskier strategies, like long-short equity, to high-risk investors with a minimum investment of 1 million rupees ($11,939.59).

Positioned between tightly regulated mutual funds and lighter-touch portfolio services, this class will give savvy investors exposure to equity derivatives.

SEBI also eased rules for passively managed mutual funds, reducing compliance, encouraging competition, and facilitating entry for less risky schemes.

Fund houses can now spin off passive funds, which replicate indexes, with lower capital and fewer regulatory requirements, SEBI said.

The decisions were taken at a meeting of the regulator's board on Monday.

The board, which includes officials from India's finance ministry, had met for the first time since allegations of conflict of interest against SEBI Chairperson Madhabi Puri Buch were levelled by a U.S. short seller and India's main opposition party. But the board did not make any statement on whether the allegations were discussed.

The press release also did not specify whether a widely anticipated tightening of derivative trading rules was discussed.

SEBI also approved easier fund-raising rules that are expected to reduce the time taken to raise funds via rights issue by half. In a rights issue, a company invites its current shareholders to buy additional stock at a discount.

Additionally, the regulator will widen its trial of the same-day settlement cycle for investors, to the top 500 market cap stocks from the current 25, in a move aimed towards increasing liquidity and efficiency in the market.

($1 = 83.7550 Indian rupees)

(Reporting by Jayshree P Upadhyay; Editing by Nivedita Bhattacharjee and Devika Syamnath)