The Securities and Exchange Board of India (Sebi) has allowed mutual funds (MFs) to invest in overseas funds and unit trusts (UTs) that have up to 25 per cent exposure to Indian equities.
The decision opens scope for domestic funds to invest in prominent global schemes, especially passive ones, which provide exposure to markets across the globe.
In recent years, Indian equities have gained higher weights in key global indices.
The move is aimed at facilitating ease of investment in overseas MFs/UTs, bringing transparency in the manner of investment, and enabling MFs to diversify their overseas investments, Sebi said in a circular.
Subsequent to the investment, if the exposure breaches the threshold, an observance period of six months from the date of publicly-available information of such breach would be permitted to Indian MF schemes. This is for monitoring of any portfolio rebalancing activity by the underlying overseas MF/UT.
During the observance period, the Indian MF scheme would not undertake any fresh investment in such overseas MF/UT. It can resume investments in such overseas MF/UT in case the exposure to Indian securities by such overseas MF/UT falls below 25 per cent.
In addition, the regulator said non-compliance will lead to suspension of fresh subscription into the scheme. Also, the asset management company (AMC) will not be allowed to launch any new scheme.
The new framework will come into force with immediate effect, Sebi said.
However, MFs have limited scope to invest in international stocks and MF schemes. This is given that they have exhausted their international investing limit. The regulator has listed several other conditions as well.
MF schemes are required to ensure that all investor 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. It should ensure that all investors have equal and proportionate rights in the fund.
-- Abhishek Kumar/Business Standard