Sebi may allow mutual funds to invest in overseas funds with exposure to Indian markets. Details here

Mutual funds in India are not explicitly permitted to invest in overseas mutual fund units, which have exposure to Indian securities. As a result, several mutual funds refrain from doing so.

Capital markets regulator Sebi has noted that, in view of the strong economic growth prospects of India, Indian securities offer an attractive investment opportunity for foreign funds, as a result of which, international indices, ETFs and mutual funds allocate a portion of their assets to Indian securities.

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For example, MSCI Emerging Markets Index has 18.08 percent weightage to Indian securities, as on April 30, 2024 and JP Morgan's 'Emerging Markets Opportunities Fund' holds approximately 15 percent in Indian investments, as on March 31, 2024.

So, Sebi is considering to allow investment by Indian mutual funds in such overseas funds which have limited exposure to Indian stocks. 

Sebi held consultations with the industry representatives from AMFI and various asset management companies (AMCs), and has now proposed that mutual fund schemes may invest in such overseas mutual funds which have exposure to Indian securities not more than 20 percent of  their net assets. 

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With regards to this proposal, Sebi has asked for public comments which can be made before June 7, 2024.

This ratio (20%) was determined to strike a balance between facilitating investment in overseas funds with exposure to India and avoiding excessive exposure at the same time. 

Breach of limit

The Sebi has categorically mentioned that if the exposure to Indian securities by the overseas mutual funds is above 20 percent at the time of making investment, it will be considered as non-compliance.

Additionally, if the exposure to Indian stocks exceeds 20 percent after investing into overseas fund, an observance period of 6 months will be permitted to Indian mutual fund schemes for monitoring of portfolio rebalancing by the underlying overseas mutual fund/ unit trust.

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Comments sought with regards to the following:

A. Whether the 20 percent limit is appropriate

B. Whether passive schemes such as overseas ETFs, index funds be excluded from the 20 percent exposure limit

C. Whether proposals regarding breach of limit are appropriate. 

D. Other factors.