Simplifying norms for domestic funds to manage offshore pooled assets, the capital market regulator Securities and Exchange Board of India (Sebi) has dropped the ‘20-25 rule’, which required a minimum of 20 investors and a cap of 25 per cent on investment by an individual, for funds from low-risk foreign investors.
According to the existing norms, a fund manager managing a domestic scheme is allowed to manage an offshore fund, subject to three specific conditions.
The first requires the investment objective and asset allocation of the domestic scheme and of the offshore fund to be the same.
The second condition requires at least 70 per cent of the portfolio to be replicated across both the domestic scheme and offshore fund.
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The third condition, being considered most stringent by the industry, requires the offshore fund should be broad-based with at least 20 investors with no single investor holding more than 25 per cent of the fund corpus.
Otherwise, a separate fund manager is required to be appointed for managing an offshore fund.
In a notification uploaded on Sebi’s website on Wednesday, the regulator said these restrictions would not apply “if the funds managed are of category I foreign portfolio investors (FPIs) and/or category II foreign portfolio investors which are appropriately regulated broad based funds.” These regulations would be called the Securities and Exchange Board of India (Mutual Funds) Regulations, 2015.
Sebi has classified FPIs into three categories, with the first two broadly being low-risk foreign institutions that include sovereign wealth funds, pension funds, banks, mutual funds, insurers, multi-lateral institutions and well-regulated foreign entities, including portfolio managers. The notification comes following the board’s approval in March.
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The third condition, being considered most stringent by the industry, requires the offshore fund should be broad-based with at least 20 investors with no single investor holding more than 25 per cent of the fund corpus.
Otherwise, a separate fund manager is required to be appointed for managing an offshore fund.
In a notification uploaded on Sebi’s website on Wednesday, the regulator said these restrictions would not apply “if the funds managed are of category I foreign portfolio investors (FPIs) and/or category II foreign portfolio investors which are appropriately regulated broad based funds.” These regulations would be called the Securities and Exchange Board of India (Mutual Funds) Regulations, 2015.
Sebi has classified FPIs into three categories, with the first two broadly being low-risk foreign institutions that include sovereign wealth funds, pension funds, banks, mutual funds, insurers, multi-lateral institutions and well-regulated foreign entities, including portfolio managers. The notification comes following the board’s approval in March.
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Earlier in January, Sebi had floated a discussion paper to amend its mutual fund regulations with regard to managing and advising of offshore pooled funds by local fund managers. The market regulator had sought comments from public on those proposals till February 2.
The relaxation in the norms have been made keeping in view the challenges faced by the local fund managers in managing offshore pooled assets and the introduction of FPI Regulations which have rationalised investment routes and monitoring of foreign portfolio investments and also streamlined categories of overseas investors.
HT Mint, New Delhi, 26th February 2016
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