Sebi to address RBI concerns on foreign investment in MFs

The Securities and Exchange Board of India (Sebi) will address the concerns of the central bank while framing the guidelines for allowing foreign individual investors to invest directly in registered mutual funds.

The guidelines, which will be in place by mid-May, will also ensure that the subscription process is as simple as possible.

A senior finance ministry official said Sebi was working on the guidelines in consultation with the Reserve Bank of India (RBI).

RBI has been worried over the high share of portfolio funds in overall capital inflows as they are prone to sudden stops and reversals. It has also been insisting on strict adherence to know-your customer (KYC) norms for investments from abroad.

The official said the guidelines would address these concerns.

At present, foreign institutional investors (FIIs) are allowed to invest in mutual funds.

“The group on capital inflows, in July last year, suggested general permission for foreign institutional investments. It has been decided that the recommendations will be implemented in stages, beginning with mutual funds,” he said.

The group on foreign investment, headed by the current Sebi Chairman, U K Sinha, who was UTI Mutual Fund chairman that time, recommended an overhaul of the regulatory framework. The panel proposed doing away with different categories such as FIIs, foreign venture capital investors and non-resident Indians (NRIs).

In the Budget, Finance Minister Pranab Mukherjee announced the government’s intent to liberalise the Portfolio Investment Scheme to allow Sebi-registered mutual funds to accept funds for equity schemes directly from foreign investors who meet the KYC norms.

Sebi will issue the guidelines to implement the move while RBI will rewrite the Fema Inbound Investment Regulations.