SEBI Consults Public on Indian Mutual Funds Investing in Overseas Securities

The Securities and Exchange Board of India (SEBI) has initiated a public consultation on the possibility of Indian mutual funds venturing into overseas mutual funds or unit trusts that allocate a fraction of their assets to Indian securities. This move comes as the markets regulator seeks to expand investment avenues for domestic funds and foster portfolio diversification.

In a circular released on Friday, SEBI invited public feedback on the proposal aimed at facilitating investments by Indian Mutual Funds in Overseas Mutual Funds (MFs)/ Unit Trusts (UTs) with exposure to Indian securities. The regulator emphasized the need for such investments, highlighting the lucrative opportunities Indian securities offer to foreign funds.

SEBI’s proposal entails permitting Indian mutual funds to invest in overseas entities, provided the foreign funds’ exposure to Indian securities remains under 20 per cent of their net assets. This restriction aims to maintain a balance between domestic and foreign investments while mitigating risks associated with overexposure.

The consultation paper elucidated the significance of this move by citing examples such as the MSCI Emerging Markets Index, where Indian securities hold substantial weightage, and the holdings of prominent international funds like JP Morgan’s ‘Emerging Markets Opportunities Fund’. Despite the potential benefits, ambiguity surrounding investments in overseas funds that allocate funds to Indian securities has hindered mutual fund investments in such avenues.

To ensure efficient cost structures and safeguard investor interests, SEBI proposed certain terms and conditions for domestic mutual funds. These include adherence to the 20 per cent exposure limit, appointment of independent investment managers for overseas MF/UTs, and establishment of blind pool corpus with no segregated portfolios, among others.

Furthermore, SEBI outlined a framework for monitoring and addressing breaches of exposure limits by overseas funds. In the event of a breach, Indian mutual funds are required to observe a six-month period and monitor portfolio rebalancing activities by the concerned overseas entity. During this period, new investments in the overseas fund/trust are prohibited, with a provision to resume investments if the exposure to Indian securities falls below the prescribed limit.

The proposal signifies SEBI’s proactive approach towards expanding investment horizons for Indian mutual funds while ensuring prudence and regulatory oversight. By seeking public opinion, the regulator aims to foster transparency, gather diverse perspectives, and refine the proposed framework to meet the evolving needs of the investment landscape.

Interested stakeholders are encouraged to submit their comments and suggestions to SEBI within the stipulated timeframe, contributing to the shaping of regulations that could potentially reshape the dynamics of India’s mutual fund industry and its engagement with global markets.

News Bureau
News Bureau
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