SEBI sets new norms for mutual funds managing offshore assets

Markets regulator SEBI on Wednesday simplified norms for domestic mutual funds to manage offshore pooled assets, dropping its "20-25 rule" which requires a minimum of 20 investors and a cap of 25 percent on investment by an individual, for funds from low-risk foreign investors.

In a notification saying the new regulations would be called the Securities and Exchange Board of India (Mutual Funds) Regulations, 2015, SEBI said the 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".

SEBI has classified FPIs into three categories, with the first two being low-risk foreign institutions that include sovereign wealth funds, pension funds, banks, mutual funds, insurers, multilateral institutions and well-regulated foreign entities, including portfolio managers.

As per the existing norms, a fund manager managing a domestic scheme is allowed to manage an offshore fund, subject to three 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 mandates at least 70 percent of the portfolio to be replicated across both the domestic scheme and the offshore fund.

The third condition requires that the offshore fund should be broad-based with at least 20 investors with no single investor holding more than 25 percent of the fund corpus. Otherwise, a separate fund manager is required to be appointed for managing an offshore fund.

SEBI's board approved the changes in March following an invitation for comments from the public on the proposals.