Market regulator Sebi on Thursday set limits on the weightages of a single stock in any sectoral and thematic indices and fixed rules for the minimum number of stocks an index can have as it sought to protect investors from risks related to portfolio concentration in Equity Exchange Traded Funds(ETFs) and Index Funds.

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An index will have a minimum of 10 stocks as its constituents, according to the portfolio rules. No stock can have weightage higher than 35 percent and for non-sectoral or non-thematic indices, no single stock can have more than 25 percent weightage in the fund, Sebi said.

The weightage of the top three constituents of the index cumulatively will not be more than 65 percent of the index, Sebi added.

Also, the individual constituent of the index will have a trading frequency greater than or equal to 80 percent and an average impact cost of 1 percent or less over previous six months.

The compliance process for these norms will be applicable to all ETFs /Index Funds tracking equity indices.

Sebi also said an individual constituent of the index needs to have a trading frequency greater than or equal to 80 percent and an average impact cost of 1 percent 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. 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,” Sebi said.

First Published:Jan 10, 2019 8:05 PM IST