SEBI/HO/IMD/IMD -PoD -1/P/CIR/149

2 · 1. In terms of paragraph 12.19.2.10 of the Master Circular, Indian Mutual Fund schemes may also invest in overseas MF/UTs that have exposure to Indian securities, provided that the total exposure to Indian securities by these overseas MF/UTs shall not be more than 25% of their assets.

2 · 2. While investing in overseas MF/UTs that have exposure to Indian securities, the Indian Mutual Fund schemes shall ensure the following:

2 · 2.1.Pooling: Contribution of all investors of the overseas MF/UT is pooled into a single investment vehicle, with no side-vehicles including segregated portfolios, sub-funds or protected calls, etc .

2 · 2.2.Pari -passu and Pro-rata: Corpus of the overseas MF/UT is a blind pool (i.e. common portfolio) with no segregated portfolios. All investors in the overseas MF/UT have pari-passu and pro-rata rights in the fund, i.e. they receive a share of returns/gains from the fund in proportion to their contribution and have pari-passu rights.

2 · 2.3.Independent investment manager/fund manager: Overseas MF/UT is managed by an independent investment manager/fund manager who is actively involved in making all investment decisions for the fund. This ensures that the investments are made autonomously by the investment manager/fund manager without influence , directly or indirectly , from any of the investors or from any other entity.

2 · 2.4.Public disclosure: Such overseas MF/UTs disclose their portfolios at least on a quarterly intervals to the public to maintain transparency.

2 · 2.5.No advisory agreement: There shall not be any advisory agreements between Indian Mutual Funds and underlying overseas MF/UTs, to prevent conflict of interest and avoid any undue advantage to either of the parties.

2 · 3. At the time of making investments (both fresh and subsequent), Indian Mutual Fund schemes shall ensure that the underlying overseas MF/UTs do not have more than 25% exposure to Indian securities.

2 · 4. Subsequent to the investment, if the exposure by an underlying overseas MF/UTs to Indian securities exceeds 25% of their net assets, an observance period of 6 months from the date of publicly available information of such breach (e.g. portfolio disclosures) shall be permitted to Indian Mutual Fund schemes for

2 · 5. During the observance period, the Indian Mutual Fund scheme:

2 · 5.1.shall not undertake any fresh investment in such overseas MF/UT.

2 · 5.2.may resume their investments in such overseas MF/UT in case the exposure to Indian securities by such overseas MF/UT falls below the limit of 25%.

2 · 6. If the portfolio of an underlying overseas MF/UT is not rebalanced within the 6month observance period, Indian Mutual Fund scheme shall liquidate its investments in the concerned underlying overseas MF/UT within the next 6 months ('liquidation period') from end of the observance period.

2 · 7. If the exposure to Indian securities by the underlying overseas MF/UT falls below the prescribed limit of 25% during the liquidation period, the requirement at clause 2.6 above shall not be applicable.

2 · 8. If the Indian Mutual Fund/ Asset Management Company fails to rebalance the portfolio of the scheme in line with the aforesaid requirements, then after the 6month liquidation period, the Indian Mutual Fund/ Asset Management Company shall:

2 · 8.1.not be permitted to accept any fresh subscriptions in concerned Indian Mutual Fund scheme;

2 · 8.2.not be permitted to launch any new scheme;

2 · 8.3.not levy exit load, if any, on the investors exiting such scheme(s).

2 · 9. The Indian Mutual Fund scheme(s) shall be exempted from the requirement of a fundamental attribute change for any change in underlying overseas MF/UT , subject to the following:

2 · 9.1.The underlying overseas MF/UT exceeds 25% exposure to Indian securities , and;

2 · 9.2.The Indian Mutual Fund scheme intends to invest in other overseas MF/UT with similar investment objectives, and;

2 · 9.3.A notice cum addendum is issued to investors.