The Securities and Exchange Board of India (Sebi) on May 17, 2024, proposed to permit Indian mutual funds to invest in overseas mutual funds that allocate up to 20 per cent of their corpus to Indian securities. In a consultation paper that sought public feedback by June 7, 2024, Sebi said, "The Indian Mutual Fund schemes may invest in such overseas MF/UTs that have exposure to Indian Securities, provided that the total exposure to Indian securities by such overseas MF/UTs shall not be more than 20 per cent of their net assets."
Why This Proposal?
Sebi noted that various international indices, exchange-traded funds (ETFs), mutual funds (MFs), and unit trusts (UTs) are allocating more funds into Indian securities considering the strong economic growth prospects of India. For instance, as of April 30, 2024, the MSCI Emerging Markets Index had an 18.08 per cent weightage in Indian securities, and JP Morgan's 'Emerging Markets Opportunities Fund' held 15 per cent in Indian investments as of March 31, 2024.
Why Not Overseas Funds With Over 20% In Indian Securities?
Sebi's proposal mandates that Indian mutual fund schemes can only invest in those overseas MFs that have Indian securities exposure of up to 20 per cent. Sebi feels the integrity of the fund's label would otherwise be violated and "may not reflect the overall purpose of investing in such FoFs."
Then the cost efficiency for end investors would also be at risk. Direct investment in Indian securities would be more cost-effective for Indian investors rather than through an overseas FoF that invests a substantial portion in Indian securities.
