SEBI allows MFs to invest in foreign funds with Indian securities exposure

Markets regulator Securities and Exchange Board of India (SEBI) on Monday allowed mutual funds (MFs) to invest in overseas mutual funds or unit trusts(UTs) that invest a specific portion of their assets in Indian securities. This is subject to the total exposure to Indian securities by such overseas funds not exceeding 25 per cent of their net assets.

The new framework will come into force with immediate effect. “Indian Mutual Fund schemes may also invest in overseas MF/UTs that have exposure to Indian securities, provided that the total exposure to Indian securities by these overseas MF/UTs shall not be more than 25% of their assets,” said the circular.

The move was aimed at facilitating ease of investment in overseas MF/UTs, bringing transparency in the manner of investment, and enabling MFs to diversify their overseas investments, SEBI said in a circular.

Also, 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 (ie common portfolio) with no segregated portfolios, ensuring all investors have equal and proportionate rights in the fund.

According to the circular, all investors in the overseas MF/UT have pari-passu (equal footing) and pro-rata rights in the fund, ie they receive a proportionate share of returns/gains from the fund.