Indian MFs can invest in overseas funds having exposure to Indian securities: SEBI

SEBI has allowed fund houses to invest in international mutual funds or unit trusts having exposure to Indian securities.

This has come after SEBI received feedback from the Mutual Fund Advisory Committee (MFAC). The development is expected to help the Indian MF industry invest in international securities, which is currently not possible due to a breach in limit of international investments.

However, Indian fund houses can invest only in international mutual funds having not more than 25% exposure to Indian securities.

Also, Indian mutual funds will have to ensure that overseas mutual funds or unit trust is a pooled vehicle with no segregated portfolio. Also, overseas MFs/Unit Trusts will have to give pari-passu rights or pro-rata rights in the underlying fund i.e. Indian MFs will receive a share of returns/gains from the fund in proportion to their contribution.

In addition, such an overseas MF/Unit Trusts should be managed by an independent investment manager or fund manager. This will ensure that investments are made without influence of investors or other entities, said SEBI. 

The underlying MF/Unit Trusts will have to disclose their holding at least on a quarterly basis. There should be no agreement between Indian MF scheme and the underlying MFs/UTs to prevent any conflict of interest, said SEBI. 

If the underlying scheme breaches a limit of 25% exposure to Indian securities, MFs have an option to wait for 6 months as an observance period. Post this, Indian MFs will have to liquidate such an investment. 

During the observance period, Indian MFs will not be allowed to take fresh investment in a scheme having exposure to such overseas MFs/Unit Trusts.

If Indian MFs do not liquidate after 6 months of such a breach, the fund house will not be allowed to launch new schemes or levy exit load in the scheme. 

This development has come into effect immediately. 

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