SEBI proposes allowing MFs to invest in overseas funds with exposure to Indian securities

SEBI has proposed that mutual funds should be allowed to invest in overseas funds having exposure to Indian securities.

In this context, the market regulator has released a consultation paper in which it said that currently, Indian overseas fund of funds (FoFs) invest in overseas mutual funds, unit trusts, ETFs and index funds to diversify their portfolio. However, there is still no official communication regarding investment in overseas schemes that have exposure to Indian securities. The proposal aims to give clarity on this aspect.

Here are key highlights of the consultation paper:

• Indian mutual fund schemes can invest in overseas schemes that have up to 20% of their net assets in Indian securities
• While investing in overseas schemes, the Indian MF schemes must ensure that the contribution of all the investors of the overseas scheme is pooled into a single investment vehicle
• Such overseas schemes should not have a segregated portfolio
• All investors in the overseas scheme should receive share of returns from the funds in proportion to their contribution
• The overseas scheme should be managed by an officially appointed, independent investment/fund manager who makes investment decisions without influence from investors or undisclosed parties
• The overseas schemes should disclose their portfolios periodically to the public
• There shall not be any advisory agreements between Indian mutual funds and overseas schemes to prevent conflict of interest and any undue advantage

Observance

• In case an overseas scheme has over 20% of its net assets in Indian securities, an observance period of 6 months will be given to the Indian mutual fund to monitor any portfolio rebalancing activity by the overseas scheme
• The Indian mutual fund scheme will not invest in such an overseas scheme during the observance period and can resume their investment if the overseas scheme reduces the exposure to Indian securities below 20%

Liquation

• If the overseas scheme fails to rebalance its portfolio during the observance period, the Indian MF scheme will have to liquidate its investment in the overseas scheme in the next 6 months, a period called as liquidation period

Non-compliance

• If the Indian MF scheme fails to do so, then it will not be permitted to accept any fresh subscriptions in its scheme. The concerned AMC will not be permitted to launch any new scheme and will not be allowed to levy exit load on investors who choose to exit the concerned scheme

You can submit your feedback on these proposals on this link.