SEBI Moves To Relax Rules For Offshore Funds After Legal Challenges

India's market regulator, the Securities and Exchange Board of India (SEBI), is planning to relax disclosure requirements for offshore funds classified as high risk, according to a Reuters report. The move comes after rules introduced during the regulator's scrutiny of the Adani Group led to complaints and legal challenges.

The proposed changes aim to address what investors describe as unintended consequences of the 2023 rules, which were designed to prevent funds from holding concentrated investments in Indian companies.

What The New Proposals Include

The expanded exemptions would give funds more time to disclose investor details, making it easier for thematic funds to invest in India, the report said. This comes at a time when foreign portfolio investors have sold a record $26.88 billion worth of Indian assets so far in 2026.

Under the 2023 rules, a fund is classified as "high risk" if it holds more than 50% of its Indian assets in a single group of companies. This threshold drew appeals from investor associations in Asia and the United States, along with legal challenges from some offshore funds, prompting SEBI to review the rules.

SEBI is currently examining three proposals. These include exempting funds that have recently begun investing in India from disclosure requirements for six months to a year, raising the threshold at which investor details must be reported, and expanding the list of countries and regulators eligible for exemptions.

Internal discussions are underway, after which SEBI will submit its recommendations to a panel that includes external members, before seeking feedback from the public, the report said.

Funds That Challenged The Rules

At least two funds have challenged SEBI's regulations in court, according to court filings. Both funds failed to secure exemptions as they were not recognised under the low-risk category.

One of these funds is Generation Investment Management, a sustainability-focused investment firm co-founded by former US Vice President Al Gore and former Goldman Sachs Asset Management CEO David Blood. The firm, which manages $25 billion globally and holds $833 million in Indian assets, filed an appeal in January after facing disclosure requirements on planned new investments. The fund said its investments typically start with a single stock, meaning 100% of its Indian assets could initially be concentrated in one company. It reportedly said its "discretionary decision making is impaired by the ongoing compliance requirement."

The second case was filed in January by Thailand-listed seafood producer Thai Union Group PCL, which invests in seafood businesses in Japan, Australia and the United States through its investment vehicles. In India, it had invested in only one company between 2008 and 2009. After SEBI's new rules required disclosure of ultimate investors, the fund exited part of its investment in 2025, citing difficulty in complying with the requirements.

The case was filed after SEBI imposed a 5% penalty on the fund's sale proceeds for failing to disclose its investors. In its appeal, the fund is seeking a waiver of the penalty, stating that its parent company has more than 50,000 publicly traded shareholders, making it "practically impossible" to furnish ultimate investor disclosures.