SEBI MF Lite Approval Boosts 1 Finance Passive Fund Push

The SEBI MF Lite approval granted to 1 Finance marks the entry of the personal finance advisory and wealth-tech firm into India's passive mutual fund market. The company has received in-principle clearance from the Securities and Exchange Board of India for an asset management company licence under the regulator's Mutual Funds Lite framework. It is targeting a launch in the fourth quarter of FY27, subject to completing regulatory and operational requirements and obtaining SEBI's final registration. Its proposed fund house will focus on passive investment products such as index funds and exchange-traded funds, the company said in a press release dated October 19. The firm has more than Rs 17,000 crore in assets under advice.

What the SEBI MF Lite approval means for 1 Finance

The SEBI MF Lite approval is the first major step towards setting up a fund house for 1 Finance, which plans to extend its existing financial planning business into investment products. The company said its proposed asset management business would complement its advisory operations by bringing financial planning and investing together. It intends to focus on low-cost, diversified and rules-based investment products. Co-founder and managing director Jeet Marwadi said financial planning and investing are deeply interconnected, and the proposed business would emphasise asset allocation, tax efficiency and disciplined investing rather than chasing market returns. The SEBI MF Lite approval still requires the company to secure final registration before launching any scheme.

How the MF Lite framework works

SEBI introduced the MF Lite framework on December 31, 2024, to ease entry barriers for asset management companies seeking to offer eligible passive mutual fund schemes. Under the earlier regulatory framework, active and passive schemes were subject to a common set of requirements covering net worth, track record, profitability and ongoing compliance. The regulator said several requirements designed for actively managed funds may not be necessary for passive schemes. The lighter framework aims to encourage new players, reduce compliance requirements, increase market penetration, facilitate investment diversification and foster innovation. Passive funds seek to replicate an underlying index rather than rely on a fund manager to outperform, with index funds and exchange-traded funds being common examples.

SEBI MF Lite approval could widen investor choice

The framework creates a separate regulatory route for eligible passive-only fund businesses, and the latest SEBI MF Lite approval shows it is drawing new entrants. By easing certain entry and compliance requirements, the framework could make the passive segment more accessible to new asset managers and encourage competition with established fund houses. For investors, greater competition could expand the choice of index funds and ETFs and potentially put pressure on costs. However, lower expenses or improved returns are not guaranteed simply because more fund houses enter the market. The SEBI MF Lite approval route does not automatically make every passive product eligible, as SEBI has specified categories and conditions including rules on the indices schemes can track.

What investors should check before the launch

Investors will have to wait for the final registration and scheme details to assess how 1 Finance's proposed offerings compare with existing passive funds. The company has not announced the specific schemes it plans to launch or their expense ratios. Chief executive and co-founder Keval Bhanushali said the company aims to build simple, transparent and cost-efficient investment solutions aligned with investors' long-term goals. Before investing, savers should compare expense ratios, the underlying index, tracking error and, for ETFs, liquidity and trading costs. Passive funds carry market risk since performance is linked to the securities or indices they track. The SEBI MF Lite approval is an initial step, and the real test will be the product lineup that follows final registration.