The Securities and Exchange Board of India’s (Sebi's) proposed regulatory framework for Index Providers could put domestic mutual funds investing overseas in a spot, Business Standard reported.
As per the report, industry experts fear that asset managers offering passive products linked to overseas indices may be forced to sever ties with index providers unwilling to comply with local regulations.
At present, index providers like S&P Dow Jones Indices, MSCI, FTSE Russell aren't required to register and do not fall under any regulatory framework in India, said the report. The proposed regulations also mandate the constitution of an oversight committee to review index design, check if it is true to label, and oversee results of the audit, it added.
Industry experts, according to BS, say that many such overseas firms may neither be willing to go for this scrutiny nor lose their discretion in the methodology used.
Even if the overseas index providers invest only in global assets but have users in India, which means, if the index is tracked by any mutual fund (MF) scheme, then the proposed rules will apply to them, noted the report. Many passive MFs in India invest abroad and have these global indices as their benchmarks and any unwillingness from these firms may restrict these funds from investing, the report pointed out.
There are 40 fund of funds (FoF) investing in overseas active funds with ₹16,322.72 crore AUM. While with the 9 passive FoFs investing overseas hold an AUM of ₹4,012.02 crore, mentioned the report.
"Currently AMCs don't have much interference in the money management for passive funds. With the regulations, the indexing will be a lot more transparent and streamlined," Pratik Oswal, Head- Passive Funds, Motilal Oswal Asset Management, was quoted as saying.