Investments in Overseas Mutual Funds/ Unit Trusts by Indian Mutual Funds
Summary
This circular permits Indian Mutual Funds to invest in overseas Mutual Funds or Unit Trusts that hold exposure to Indian securities, subject to a 25% cap on such exposure. It mandates specific structural and transparency requirements for these overseas funds, including pooling of assets, pari-passu rights, independent management, and quarterly public disclosures. The document outlines strict compliance procedures, including observance and liquidation periods for breaches, as well as penalties for non-compliance by Indian Mutual Funds.
Text
Mutual Funds are permitted to invest in overseas securities as specified under paragraph 12.19.2 of the SEBI Master Circular... which also includes investment in overseas Mutual Funds/Unit Trusts (‘MF/UTs’).
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.
Contribution of all investors of the overseas MF/UT is pooled into a single investment vehicle, with no side-vehicles including segregated portfolios, sub-funds or protected calls, etc.
Corpus of the overseas MF/UT is a blind pool (i.e. common portfolio) with no segregated portfolios. All investors in the overseas MF/UT have pari-passu and pro-rata rights in the fund...
Overseas MF/UT is managed by an independent investment manager/fund manager who is actively involved in making all investment decisions for the fund.
Such overseas MF/UTs disclose their portfolios at least on a quarterly intervals to the public to maintain transparency.
There shall not be any advisory agreements between Indian Mutual Funds and underlying overseas MF/UTs, to prevent conflict of interest and avoid any undue advantage to either of the parties.
At the time of making investments (both fresh and subsequent), Indian Mutual Fund schemes shall ensure that the underlying overseas MF/UTs do not have more than 25% exposure to Indian securities.
Subsequent to the investment, if the exposure by an underlying overseas MF/UTs to Indian securities exceeds 25% of their net assets, an observance period of 6 months from the date of publicly available information of such breach... shall be permitted...
During the observance period, the Indian Mutual Fund scheme: shall not undertake any fresh investment in such overseas MF/UT.
may resume their investments in such overseas MF/UT in case the exposure to Indian securities by such overseas MF/UT falls below the limit of 25%.
If the portfolio of an underlying overseas MF/UT is not rebalanced within the 6-month observance period, Indian Mutual Fund scheme shall liquidate its investments in the concerned underlying overseas MF/UT within the next 6 months...
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Source: SecMarx — Investments in Overseas Mutual Funds/ Unit Trusts by Indian Mutual Funds. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.