BackSome India MFs resume fresh investments in overseas funds
Sebi has now allowed mutual funds (MFs), with a rider, to resume subscriptions for international funds and invest in foreign securities
PremiumMany mutual funds have started accepting fresh inflows into their overseas funds, after suspending them for almost five months. In February 2020, asset management companies (AMCs) investing in overseas securities were advised to stop subscriptions to avoid the breach of industry-wide overseas limits of $7 billion.
Market regulator Sebi has now allowed mutual funds (MFs), with a rider, to resume subscriptions for international funds and invest in foreign securities.
The total foreign investment by the fund house shall remain capped at the investment made as of 1 February. It implies that any limit available due to redemptions in the past few months can be used by the AMCs for fresh inflows. (Fund-of-funds investing in overseas ETFs have a separate $1 billion limit which has not yet been breached.)
For example, say, a fund house invested ₹100 crore (purchase cost, not the market value) abroad, as of February 2022, and thereafter sold some securities due to redemptions by investors. The new regulation says that the fund house can now accept inflows until it reaches the ₹100 crore limit again.
Some fund houses such as Axis Mutual Fund and Motilal Oswal Mutual Fund did not see major redemptions in their overseas funds in the past few months and so have not resumed the schemes.
A few fund houses are willing to accept inflows with some restrictions. For example, Franklin Templeton resumed just the SIPs of existing investors into three of its global funds; Mirae Asset Mutual Fund will accept only lumpsum investments into three of its overseas funds with a limit of ₹2 lakh per person per scheme per day (See table).
Note that some of the schemes such as PPFAS Flexi Cap Fund and DSP Value Fund, which are investing only partially in international stocks, do not have any restrictions currently on their inflows. PPFAS was quick in communicating to investors that they cannot increase the overseas allocation from their current levels.
Sebi’s move to allow fresh investments comes at a time when stock markets across the world see sharp corrections, opening up a potential opportunity for Indian investors.
The YTD (year-to-date) returns of key global indices such as S&P 500 and Nasdaq 100 index representing the US market were down by 23% and 31%, respectively.
An MSCI emerging market index ETF and the FTSE Greater China fell by 19% and 16%, respectively.
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