Investment in MF Schemes Including ETFs is Not Covered Under Permissible Investments by Category III AIF | SEBI

Informal Guidance No. SEBI/HO/AFD/PoD/OW/2023/50721; Dated: 15.12.2023

A Category III AIF registered with SEBI sought informal guidance regarding the permissibility to make investments in the units of Exchange Traded Funds (ETFs) for earning regular income by the fund.

In its response, SEBI clarified that in terms of Reg. 18 of SEBI (AIF) Regulations read with Reg. 2(1)(jb) of MF Regulations, an investment in mutual fund schemes involving ETFs is not covered under the list of permissible investments by Category III AIF.

However, in terms of Regulation 15(1)(f) of AIF Regulations, the permissible option for a Category III AIF to put money in a mutual fund scheme is investing the un-invested portion of the investable funds and divestment proceeds pending distribution to investors in liquid mutual funds, till the deployment of funds as per the investment objective or the distribution of the funds to investors as per the terms of the fund documents, as applicable.

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