SEBI allows mutual funds to invest in foreign funds with conditions
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New Delhi: The Securities and Exchange Board of India (Sebi) on Monday allowed mutual fund companies (MFs) to invest in foreign mutual funds or unit trusts that invest a certain portion of their assets in Indian securities, subject to the condition that the total investment of such foreign funds in Indian securities does not exceed 25 per cent of their net assets.
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The Securities and Exchange Board of India said in a circular that the move is aimed at simplifying investments in foreign MFs/unit trusts, bringing transparency in the method of investment and enabling MFs to diversify their foreign investments. SEBI said the new framework will be implemented with immediate effect.
This condition has to be followed
According to the circular, mutual fund schemes have to ensure that the contributions of all investors in the foreign MF / unit trust are included in a single investment vehicle without any associate entity. The fund of the foreign MF / unit trust should be such that there are no separate portfolios to ensure that all investors have equal and proportionate rights in the fund.
This has to be kept in mind that the market regulator has banned advisory agreements between Indian mutual funds and underlying foreign mutual funds to prevent conflict of interests. SEBI said in its circular, “Indian mutual fund schemes can also invest in foreign MFs / unit trusts that have investments in Indian securities.
The only condition for this is that the total investment of these foreign MFs / unit trusts in Indian securities should not exceed 25 percent of their assets.” If this limit is violated after investment, then a period of 6 months will be given to balance the portfolio with foreign funds, but during this time no new investment will be made in it.
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