SEBI has allowed mutual funds (MFs) to invest in overseas funds or unit trusts that invest a specific portion of their assets in Indian securities.
In a circular issued on Monday, the regulator said at the time of making investments (both fresh and subsequent), Indian MF schemes will have to ensure that the overseas MF/UTs do not have over 25 per cent exposure to Indian securities.
Transparency and diversification
The move is aimed at facilitating ease of investment in overseas MF/UTs, bringing transparency, and enabling MFs to diversify their overseas investments, the circular said. The new framework will come into force with immediate effect, it added.
The MF schemes are required to ensure that all investors’ contributions to an overseas MF/UT are combined into a single investment vehicle without any side vehicles.
The corpus of an overseas MF/UT should be a blind pool with no segregated portfolios, ensuring all investors have equal and proportionate rights in the fund, said SEBI.
Overseas MF should be managed by an independent fund manager who is actively involved in making all investment decisions for the fund. This ensures that the investments are made autonomously by the fund manager without influence from any investor or any other entity, it said.
To prevent conflicts of interest, SEBI has barred advisory agreements between Indian MFs and the underlying overseas MFs.
In case of breach
Subsequent to the investment, the regulator said if the exposure breaches threshold, an observance period of six months from the date of breach would be permitted to Indian MF schemes for monitoring of any portfolio rebalancing activity by the underlying overseas entity.
During the observance period, the Indian MF scheme would not undertake any fresh investment in such overseas unit and can resume investments after the exposure falls below the limit of 25 per cent.
If the portfolio of an underlying overseas MF/UT is not rebalanced in six month, the Indian MF scheme will liquidate its investments in next six months from end of the observance period, it said.
