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๐’๐„๐๐ˆ ๐œ๐จ๐ง๐ฌ๐ข๐๐ž๐ซ๐ฌ ๐š๐ฅ๐ฅ๐จ๐ฐ๐ข๐ง๐  ๐ˆ๐ง๐๐ข๐š๐ง ๐Œ๐ฎ๐ญ๐ฎ๐š๐ฅ ๐…๐ฎ๐ง๐ ๐ข๐ง๐ฏ๐ž๐ฌ๐ญ๐ฆ๐ž๐ง๐ญ๐ฌ ๐ข๐ง ๐Ž๐ฏ๐ž๐ซ๐ฌ๐ž๐š๐ฌ ๐Œ๐ฎ๐ญ๐ฎ๐š๐ฅ ๐…๐ฎ๐ง๐๐ฌ ๐ฐ๐ก๐ข๐œ๐ก ๐ก๐š๐ฌ ๐ž๐ฑ๐ฉ๐จ๐ฌ๐ฎ๐ซ๐ž ๐ญ๐จ ๐ˆ๐ง๐๐ข๐š๐ง ๐ฌ๐ž๐œ๐ฎ๐ซ๐ข๐ญ๐ข๐ž๐ฌ

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SEBI has recently issued a consultation paper on a proposal that aims to allow Indian Mutual Funds to invest in Overseas Mutual Funds (MFs) or Unit Trusts (UTs) that have limited exposure to Indian securities.

๐๐š๐œ๐ค๐ ๐ซ๐จ๐ฎ๐ง๐ ๐š๐ง๐ ๐๐ž๐ž๐ ๐Ÿ๐จ๐ซ ๐‚๐ก๐š๐ง๐ ๐ž

Presently, the law outlines permissible overseas investments for Indian Mutual Funds. However, it does not explicitly allow investments in overseas MF/UTs with exposure to Indian securities. This ambiguity has led many mutual funds to avoid such investments, thereby limiting their diversification options.

Indiaโ€™s robust economic growth makes its securities an attractive investment opportunity for global funds. Various international indices, ETFs, MFs, and UTs allocate a portion of their assets to Indian securities, recognizing the potential for high returns. In fact, SEBI itself identifies that MSCI Inc. Emerging Markets Index has 18.08% weightage to Indian securities and similarly, J.P. Morgan‘s ‘Emerging Markets Opportunities Fund’ holds approximately 15% in Indian investments. Hence, allowing Indian Mutual Funds to invest in these overseas funds can enhance portfolio diversification and potentially improve returns. However, clarity on the permissible exposure within these funds is crucial to mitigate risks and ensure alignment with fund objectives.

๐“๐ก๐ž ๐๐ซ๐จ๐ฉ๐จ๐ฌ๐š๐ฅ

The proposal outlines several key features:

๐š) ๐ˆ๐ง๐ฏ๐ž๐ฌ๐ญ๐ฆ๐ž๐ง๐ญ ๐‹๐ข๐ฆ๐ข๐ญ๐ฌ: Indian Mutual Fund schemes may invest in overseas MF/UTs with exposure to Indian securities, provided the exposure does not exceed 20% of their net assets. This ensures that while funds can benefit from Indiaโ€™s growth, the primary focus remains on overseas diversification.

๐›) ๐Œ๐š๐ง๐š๐ ๐ž๐ฆ๐ž๐ง๐ญ ๐ˆ๐ง๐๐ž๐ฉ๐ž๐ง๐๐ž๐ง๐œ๐ž: The overseas MF/UT must be managed by an independent investment manager with no advisory agreements with the Indian Mutual Fund, preventing conflicts of interest.

๐œ) ๐๐ซ๐ž๐š๐œ๐ก ๐จ๐Ÿ ๐‹๐ข๐ฆ๐ข๐ญ ๐š๐ง๐ ๐‘๐ž๐›๐š๐ฅ๐š๐ง๐œ๐ข๐ง๐ : If the exposure to Indian securities exceeds 20% post-investment, Indian Mutual Funds have a 6-month observance period to monitor portfolio rebalancing. If rebalancing does not occur, they must liquidate their investments within the following 6 months unless the exposure falls below 20% again.

๐‚๐จ๐ง๐œ๐ฅ๐ฎ๐ฌ๐ข๐จ๐ง

This proposal marks a significant step towards diversifying opportunities for Indian Mutual Funds. By allowing controlled exposure to Indian securities through overseas funds, it aims to optimize returns while maintaining the integrity and primary objectives of these funds.

Readers are welcome to send their views to Regstreet Law Advisors at info@regstreetlaw.com.

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