SEBI proposed easier norms for domestic mutual fund managers

Securities and Exchange Board of India (SEBI) on 12 January 2015 proposed easier norms for domestic mutual fund managers. SEBI has sought comments from public till 2 February 2015 on these proposals.

The proposed norms aimed to make it easier for domestic mutual funds to manage offshore pooled assets.

The norms proposed by SEBI

20:25 Rule

It proposed to drop 20-25 rule requiring 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.

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.

Separate fund manager

It proposed to do away with the rule that requires appointment of separate fund manager for managing an offshore fund

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
• The portfolio is replicated (at least 70 percent) in both the funds managed by that fund manager
• Such offshore fund is 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.

Why the need for such norms?

• Challenges faced by the local fund managers in managing offshore pooled assets
• Introduction of FPI Regulations has rationalized the investment routes and monitoring of foreign portfolio investments and also streamlined categories of overseas investors.
Currently, there are 45 mutual fund houses, which together manage 11 lakh crore rupees investor assets.