Market regulator Securities and Exchange Board of India (SEBI) has proposed a tighter regulatory framework for market indices used by mutual funds, seeking to enhance transparency, governance, and investor protection. Under the proposal, indices tracked or used as benchmarks by domestic mutual fund schemes with a combined asset under management (AUM) exceeding ₹20,000 crore will be classified as “significant indices”.
Such indices will fall within the ambit of SEBI’s Notified Index Providers Regulations, 2024. The regulator said the rapid growth of exchange-traded funds (ETFs) and index funds has made robust oversight of benchmark construction and administration increasingly critical for safeguarding investor interests.
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Why the new framework matters
According to SEBI, the expansion of index-linked investment products has elevated the systemic importance of benchmarks in India’s capital markets. Any weakness in index methodology, rebalancing practices, or governance standards could directly affect returns and risk exposure for millions of investors.
The proposed framework is intended to address these concerns by introducing clearer accountability for index providers and ensuring higher standards of transparency in benchmark design and maintenance.
How ‘significant indices’ will be identified
As outlined in the consultation paper, an index will be deemed “significant” if:
- It is tracked or used as a benchmark by domestic mutual fund schemes, and
- The aggregate AUM of such schemes exceeds ₹20,000 crore.
The threshold has been set to ensure that indices with a substantial impact on investor assets are subject to enhanced regulatory scrutiny.
Methodology for AUM calculation
The draft framework specifies that AUM will be calculated based on the daily average AUM of relevant mutual fund schemes over the preceding six-month period, ending on June 30 and December 31 each year.
Where a mutual fund scheme tracks multiple indices, the AUM attributable to each index will be allocated proportionately.
In the case of “indices of indices”, the associated AUM will be apportioned according to the weights of the underlying indices.
SEBI has invited public comments on the proposed methodology, following which the final framework will be notified.
What changes for index providers
Once implemented, all index providers managing “significant indices” will be required to seek formal registration with SEBI and comply with prescribed regulatory standards. These will cover governance structures, conflict-of-interest safeguards, methodological transparency, and data integrity.
The regulator’s objective is to ensure that benchmark construction processes are transparent, auditable, and accountable to market participants.
Indicative list of significant indices
Based on mutual fund AUM data from January to June 2025, SEBI has released an indicative list of potential “significant indices”. These include major equity benchmarks such as BSE Sensex, Nifty 50, Nifty Bank, Nifty 100, and Nifty 500, along with several debt, hybrid, and thematic indices.
These indices are managed by entities such as BSE Index Services, NSE Indices, and CRISIL.
However, benchmarks already notified and regulated by the Reserve Bank of India (RBI) will remain outside SEBI’s proposed framework.
Implementation timeline
If finalised, index providers managing “significant indices” will be required to apply for SEBI registration within six months from the date the circular is issued. Market participants expect the move to introduce greater discipline in the benchmark ecosystem and reinforce investor confidence in passive investment products.
Implications for investors
The regulatory initiative is expected to improve transparency in index-based products, enhance clarity around methodologies, and reduce potential conflicts of interest. Over the long term, this could strengthen risk management and governance standards for ETF and index fund investors.
SEBI’s proposal is seen as a key step toward reinforcing the credibility and reliability of benchmarks in India’s rapidly expanding passive investment landscape. Following public consultation, the final rules are expected to clearly define the responsibilities of index providers and further align benchmark governance with investor protection objectives.
About the author – Rehan Khan is a law student and legal journalist with a keen interest in cybercrime, digital fraud, and emerging technology laws. He writes on the intersection of law, cybersecurity, and online safety, focusing on developments that impact individuals and institutions in India.
