New Delhi, Oct. 10 -- Mutual funds have stayed clear of MF Lite, a new light-touch regulation for passive funds, ironically at a time when ever more investors are flocking to such funds.

According to industry executives, the disinterest stems from several factors: new entrants are tied to passive funds; a high asset threshold restricts product flexibility by excluding niche indices; existing fund houses face complex operational and legal barriers to hiving off passive operations; and the low expense fees of passive funds dissuade small new entrants altogether.

The result: Ten months since the Securities and Exchange Board of India (Sebi) debuted MF Lite in December 2024 for both new and existing fund houses, no one has signed up. MF Lit...