MUMBAI: Domestic asset management companies can now invest in overseas mutual funds and unit trusts (UTs) that have exposure to domestic securities, provided such exposure does not exceed 25 per cent of their total assets.
In a circular issued on Monday, the Securities and Exchange Board of India (SEBI) stated that to be eligible for investment, the target overseas MFs/UTs must be managed by an independent investment manager or fund manager who is actively involved in making all investment decisions for the fund.
The circular outlined several conditions that the target overseas funds must meet to qualify for investment by domestic funds:
Firstly, pooling: the contributions of all investors in the overseas MFs/UTs must be pooled into a single investment vehicle. There should be no side vehicles, such as segregated portfolios, sub-funds, or protected cells.
Secondly, pari-passu (equal rights) and pro-rata: the corpus of the overseas MFs/UTs must operate as a blind pool, meaning it should be a common portfolio without segregated sections. All investors in such overseas MFs/UTs should have pari-passu and pro-rata rights, which means they receive a share of the fund’s returns or gains proportional to their contribution and have equal rights in the fund.
Thirdly, public disclosure: the overseas MFs/UTs must disclose their portfolios to the public at least quarterly to maintain transparency.
Fourthly, no advisory agreement: there should be no advisory agreements between domestic MFs and the underlying overseas MFs/UTs. This is to prevent conflicts of interest and ensure that neither party gains any undue advantage.