SEBI Permits Indian Mutual Funds To Invest In Overseas Funds With 25% Indian Securities Exposure

Market regulator SEBI, on Monday, released a circular introducing new regulations allowing Indian mutual funds to invest in overseas funds that allocate a portion of their assets to Indian securities. This is to encourage investment opportunities for Indian mutual funds and promote transparency in cross-border investments.

As per the SEBI circular, Indian mutual fund schemes are permitted to invest in overseas Mutual Funds and Unit Trusts, provided that these funds do not exceed a 25% allocation of their assets to Indian securities. This limit aims to safeguard investor interests while enabling mutual funds to diversify their portfolios through international investments.

Firstly, all investor contributions in these overseas funds must be pooled into a single investment vehicle, ensuring that all investors have proportional rights to the returns generated by the fund. 

Additionally, the overseas MF/UTs must be managed by independent investment managers, guaranteeing that investment decisions are made autonomously without any influence from investors or external entities. To maintain transparency, these funds are also required to disclose their portfolios at least quarterly.

Importantly, the regulations prohibit any advisory agreements between Indian mutual funds and the underlying overseas MF/UTs. This measure is intended to prevent conflicts of interest and ensure that both parties operate independently.

In terms of monitoring compliance, the circular states that if an overseas fund’s exposure to Indian securities exceeds the 25% threshold, Indian mutual funds will have a six-month observance period to monitor and potentially rebalance their investments accordingly. Should an overseas fund fail to rebalance within this period, Indian mutual funds must liquidate their investments in the concerned overseas MF/UT within an additional six months.

Failure to comply with these regulations could result in restrictions on accepting new subscriptions and launching new schemes.

The new framework is effective immediately.