The board approved a proposal that clubbing of investment limit for FPIs will be on the basis of common ownership of more than 50 percent or common control, according to its media statement by the Securities and Exchange Board of India. “However, in the case of appropriately regulated public retail funds, investment limits will not be clubbed on the basis of common control.”
The board took a call that clubbing of investment limit should not be done on the basis of same set of beneficial owners as per the Prevention of Money Laundering Act. The move was based on the recommendations of a SEBI working group under HR Khan.
Currently, the FPIs are treated as part of the same investor group and the investment limits of all such entities are clubbed for deriving the investment limit as applicable to a single FPI, in case of the same set of ultimate beneficial owners investing through multiple entities.
Side-Pocketing Allowed For Mutual Funds
SEBI has also allowed mutual funds to create segregated portfolios of debt and money market instruments, subject to various safeguards. This facility will be available to mutual funds based on credit events. “Creating segregated portfolio may be optional for mutual funds, but approval of trustees is necessary for activating such a portfolio.”
In market parlance, this is commonly referred to as “side-pocketing”. It is a mechanism to separate distressed, illiquid and hard-to-value assets from other more liquid assets in a portfolio. It prevents the distressed assets from damaging the returns generated from more liquid and better-performing assets.
"Allowing a segregated portfolio to be created lets asset managers move bonds which undergo a credit event to segregated portfolio. This prevents redemption panic and will allow the primary portfolio to operate as usual, without any undue liquidity stress.
Kaustubh Belapurkar, Director of Fund Research, Morningstar
The board also approved modifications to the existing offer-for-sale mechanisms to expand the universe of firms to whom the facility is available and bring more clarity in the conditions for cancellation of an offer.