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SEBI Mandates Index Provider Registration
The Securities and Exchange Board of India (SEBI) has issued new rules requiring index providers to register if they manage 'significant indices'. These regulations, part of the Index Providers Regulations, 2024, take effect on May 6, 2026. SEBI aims to boost governance and transparency in India's expanding financial benchmark market. An index will be considered significant if mutual fund schemes tracking it hold an average daily cumulative asset under management (AUM) of over ₹20,000 crore. This assessment will be conducted twice a year.
Market Growth Fuels Regulatory Push
India's mutual fund industry has expanded rapidly, with total AUM reaching about ₹73.73 trillion by March 2026. This growth, averaging 21.91% annually over the last five years, has been largely fueled by passive funds, hybrid schemes, and equity funds. These funds channel substantial investor capital, making index providers influential. Global regulators also oversee index providers. Europe's EU Benchmarks Regulation and UK rules ensure objective index methodologies. The U.S. SEC is considering regulating index providers as investment advisers. SEBI's move aligns with these global efforts to ensure transparency and accountability for indices that guide investor decisions. This new regulation fills a gap identified by SEBI in a 2022 consultation paper.
Potential Challenges for Index Providers
However, the new rules may increase compliance costs for index providers, potentially leading to consolidation among smaller firms or higher expenses for investors. While the ₹20,000 crore AUM threshold targets influential indices, it might overlook important niche benchmarks. The semi-annual review cycle could also cause shifts in how indices are classified. Historically, SEBI has acted to restore market confidence, but new regulations can cause initial disruptions. Differences in regulatory approaches worldwide, such as how the U.S. SEC and EU treat index providers, could complicate operations for international firms. Index providers focused on ESG factors may also face additional challenges due to evolving standards and scrutiny.
Registration Deadline and Market Impact
Index providers identified as managing 'significant indices' must register with SEBI within six months of the rules taking effect. Entities already recognized by the Reserve Bank of India (RBI) as significant benchmarks are exempt. These changes are expected to align India's index administration with international standards, fostering a more reliable environment for passive investing. The regulations are projected to enhance investor confidence as India's market continues to grow, with mutual fund AUM predicted to reach over ₹300 trillion by 2035.