SEBI Scrutinizes Offshore Fund Disclosure Rules Amid Global Investment Slowdown and Legal Challenges

SEBI Scrutinizes Offshore Fund Disclosure Rules Amid Global Investment Slowdown and Legal Challenges​

The Securities and Exchange Board of India (SEBI) is reportedly moving to relax investor-disclosure requirements for certain offshore funds, following widespread complaints and legal challenges prompted by the existing regulations. The review comes as foreign portfolio investors have seen a substantial outflow, with record $26.88 billion sold so far in 2026.

Sources familiar with the matter state that these proposed changes aim to address unintended consequences arising from the 2023 rules. These rules were initially introduced to prevent funds from maintaining overly concentrated investments within Indian companies.

Proposed Relaxations Targeted at Attracting Foreign Capital​

The regulatory review is reportedly set to ease pain points and stimulate long-term foreign capital inflows into India. The 'high risk' category, defined as any fund holding more than 50% of its Indian assets in a single group of companies, triggered the initial investor backlash.

Two key proposals are currently being examined by SEBI. These include exempting funds that have recently begun investing in India from disclosure requirements for anywhere between six months to a year. Another proposal involves raising the threshold at which fund managers must report detailed investor information.

Furthermore, there is an initiative to expand the list of countries and regulators eligible for exemptions under the current guidelines. SEBI plans to conduct internal discussions before submitting these recommendations to an external panel, seeking public feedback afterward.

Legal Battles Challenge Disclosure Mandates​

At least two funds have legally challenged SEBI's regulations in court filings. These funds reportedly failed to obtain exemptions as they were not classified under the low-risk category by the regulator. The challenges point toward significant operational difficulties created by the compliance mandates.

Generation Investment Management, a sustainability-focused firm managing $25 billion with $833 million held in India, is one of the challenging entities. The fund faced disclosure requirements concerning planned new investments, leading it to file an appeal in January.

The asset manager contended that its funds typically identify just one stock upon commencing investment, which would automatically place 100% of its Indian assets into a single company. The fund argued that continuous compliance obligations were impairing discretionary decision-making within the organization.

Global Funds Face Compliance Hurdles​

A second case involves Thai Union Group PCL, a Thailand-listed seafood producer investing through various vehicles across Japan, Australia, and the U.S. In India, this entity had only invested in one company between 2008 and 2009.

After SEBI implemented its new rules requiring disclosure of ultimate investors, Thai Union decided to exit part of its investment in 2025. The decision was based on the difficulty of complying with the stringent requirements due to their wide shareholding structure.

The case was formally filed after SEBI levied a 5% penalty on the fund's sale proceeds for non-disclosure. In court, the parent company stated that furnishing ultimate investor disclosures was practically impossible as it has more than 50,000 publicly traded shareholders.