Sebi Allows MFs to Invest in Foreign Funds with Indian Assets
Markets regulator Sebi permitted MFs to invest in offshore mutual funds or unit trusts having an investment in a committed minimum percentage of their combined net assets in Indian securities. The total exposure, however, should not surpass 25 per cent of their net assets.
The move would ease overseas MF/UT investment, ensure transparency in the manner of investment, and enable MFs to diversify their overseas investments, Sebi said in a circular.
The new framework shall come into effect immediately, the Securities and Exchange Board of India said.
Besides, MF schemes must be structured such that all the investments made by investors in an overseas MF/UT get aggregated into a single investment vehicle without any side vehicles.
The corpus of an overseas MF/UT shall be a blind pool and there shall not be segregated portfolios so that all the investors have equal and proportionate rights in the fund.
"All investors in the overseas MF/UT have pari-passu and pro-rata rights in the fund, i.e. they receive a share of returns/gains from the fund in proportion to their contribution and have pari-passu rights," Sebi said.
The regulator has banned advisory agreements between Indian MFs and the underlying overseas MFs as there can be a scope of conflicts of interest between them.
In its circular, Sebi said Indian mutual fund schemes may also invest in overseas MF/UTs that have exposure to Indian securities, provided the total exposure to Indian securities by these overseas MF/UTs shall not be more than 25% of their assets.
Indian MF schemes shall, while making fresh and subsequent investments, ensure that exposure of the overseas MF/ UTs to Indian securities should not exceed 25 per cent.
After investing in, if the exposure has breached threshold, an observation period of six months from the date of publicly available information of such breach would be allowed to Indian MF schemes for monitoring of any portfolio rebalancing activity by the underlying overseas MF/UT.
Such overseas MF/UT would not make any new investment under the Indian MF scheme and could continue investments in such overseas MF/UT in the event such overseas MF/UT decreases its exposure to Indian securities below 25 per cent during the period of observation.
