Sebi notifies norms for MFs managing offshore money

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.

The third condition, being considered most stringent by the industry, requires the offshore fund should be broadbased 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.