The Securities and Exchange Board of India (SEBI) has proposed a new rule to expand investment options for mutual fund investors in India. 

The proposal suggests allowing Indian mutual funds to invest in overseas funds that dedicate a portion of their assets to Indian securities. 

However, this investment can be at most 20% of the overseas fund’s total assets. SEBI aims to ensure that this change maintains the integrity of the Indian Fund of Funds (FoFs) and remains cost-effective for investors. 

This proposal comes as Indian securities are considered an attractive investment opportunity for foreign funds due to India’s strong economic growth prospects. 

Currently, international indices, exchange-traded funds (ETFs), mutual funds (MFs), and unit trusts (UTs) have been increasingly allocating a portion of their assets to Indian securities. 

One example is the MSCI Emerging Markets Index, which allocated slightly over 18% to Indian securities as of April 30, 2024. 

SEBI’s proposal addresses the uncertainty regarding the permissibility of Indian mutual funds investing in overseas funds.