To make it easier for domestic mutual funds to manage offshore pooled assets, Sebi on Monday proposed to drop ‘20-25 rule’, which requires a minimum of 20 investors and a cap of 25 per cent investment by an individual investor in a particular scheme, for certain foreign entities.
Besides, Sebi has suggested doing away with the rule that requires appointment of separate fund manager for managing an offshore fund.
In a discussion paper, Sebi has proposed that the requirements of appointing a separate fund manager, replication of portfolio, criteria of 20 investors with no single investor holding over 25 per cent may not be applicable to funds managed by local fund managers in regard to Category I and Category II FPIs (Foreign Portfolio Investors).
Category I FPIs includes government and government related entities and Category II FPIs includes both broad based entities such as mutual funds, investments trusts and persons such as portfolio managers, investment managers, asset management companies, banks among others.
Currently, there are 45 mutual fund houses, which together manage Rs 11 lakh crore investor assets.
The market regulator has sought comments from public till February 2 on these proposals.
These suggestions has 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 has rationalized the investment routes and monitoring of foreign portfolio investments and also streamlined categories of overseas investors.
Sebi said that replication of portfolio becomes difficult to achieve as the investment objective, investment strategy and the benchmark for each of the funds, including offshore funds, managed by local fund managers, are different.
Majority of offshore funds follow MSCI India Index as their benchmark while none of the local funds follow MSCI India Index. The composition of MSCI India Index is different as compared to local benchmarks such as Nifty, Sensex, CNX 500, BSE 100 or BSE 200.
Currently, for managing an offshore fund it is allowed to appoint the same fund manager who is managing domestic scheme, only if, the investment objective and asset allocation of such scheme and offshore fund are same and the portfolio is replicated (at least 70 per cent) in both the funds managed by that fund manager, otherwise, a separate fund manager is required.
Further, such offshore fund has to be a broad based fund i.e. the fund has at least 20 investors and no single investor accounts for more than 25 percent of corpus of the fund.
