Mutual funds can now invest in overseas MFs, unit trusts with exposure to Indian securities

The Sebi circular stated that the overseas MF/UT must be managed by an independent investment manager/fund manager who is actively involved in making all investment decisions for the fund.

Mutual fund (MF) schemes can now invest in overseas MFs and unit trusts (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 percent of their assets, said a Sebi circular on Monday.

In the circular dated November 4, the Securities and Exchange Board of India (Sebi) stated, that these MFs and UTs have to ensure five criteria are met.

They are as follows:
1.Pooling: 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.

2. Pari-passu and Pro-rata: 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, i.e. they receive a share of returns/gains from the fund in proportion to their contribution and have pari-passu rights.

3. Pari-passu and Pro-rata: 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, i.e. they receive a share of returns/gains from the fund in proportion to their contribution and have pari-passu rights.

4. Public disclosure: Such overseas MF/UTs disclose their portfolios at least on a quarterly intervals to the public to maintain transparency.

5. No advisory agreement: 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.