SEBI Permits Indian Mutual Funds To Invest In Overseas Funds

On April 12, 1988, the Government of India passed a resolution creating the Securities and Exchange Board of India as a non-statutory organization. The Ministry of Finance within the Government of India oversees the Securities and Exchange Board of India, which is the regulatory body for the country’s securities and commodities markets.

Indian mutual fund companies can now invest in foreign mutual funds

Mutual funds (MFs) may use foreign mutual funds or unit trusts that have received approval from the Securities and Exchange Board of India (Sebi) to allocate a portion of their assets to Indian securities. Sebi hopes that this rule will increase investment transparency and make it easier to invest in foreign mutual funds.

Only 25% of the net assets of Indian mutual funds may be invested in foreign mutual funds

“The following has been decided based on feedback received from the industry, consultation with the Mutual Fund Advisory Committee, and public consultation in order to facilitate ease of investment in overseas MF/UTs, to bring transparency in the manner of investment, and to enable Mutual Funds to diversify their overseas investments,” according to a circulated Sebi circular. No more than 25% of the net assets of these foreign funds should be invested in Indian securities overall.

No agreement between foreign and Indian mutual funds

As per SEBI’s explanation, “Every investor in the overseas MF/UT has pari-passu and pro-rata rights, meaning they receive returns in proportion to their contributions.” In order to avoid conflicts of interest, the regulator has also outlawed advisory agreements between Indian MFs and foreign MFs.

What did SEBI say?

Indian mutual fund schemes are permitted to invest in foreign MF/UTs that have exposure to Indian securities, as long as the total exposure does not surpass 25% of their assets, according to SEBI. For both new and recurring investments, Indian MF schemes need to confirm that the underlying foreign MF/UTs do not go over this cap.

The overseas fund will grant an observance period of six months to monitor portfolio rebalancing if the exposure surpasses the threshold after investment. The Indian MF scheme is not allowed to make any new investments in foreign MFs or UTs during this time, and it can only start up again if the exposure drops below 25%.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.