Capital markets regulator Securities and Exchange Board of India (Sebi) has allowed mutual funds to accept fresh money in international schemes subject to the overall industry limit of $7 billion, reported The Economic Times.
In a letter to industry body Association of Mutual Funds of India (AMFI) last week, the capital markets regulator said asset managers may resume subscriptions and make investments in overseas funds or securities ‘up to the headroom available without breaching the overseas investment utilization limit’.
As a result of lack of clarity over the limits available, some mutual funds may not accept investor flows in these products.
While there is no estimate of the redemptions in international schemes, mutual fund officials and distributors speculate the headroom to accept fresh flows could be low. This is because international schemes did not witness sharp outflows amid the correction.
“We estimate that the total headroom for the industry will be just 2-3% of the $7 billion limit,” said the CEO of a domestic fund house. This means the industry will be able to add just ₹800-1200 crore of international assets.
As advised by Sebi, AMFI had asked all fund houses to suspend fresh investments in schemes that intend to invest in overseas securities beginning February 2. The regulator has a cap of $7 billion on the mutual fund industry’s investment in overseas stocks.
It was believed that mutual funds had crossed the 95 percent mark. The RBI, which decides on overseas investment rules by domestic individuals and entities, has not allowed a higher ceiling.
While some fund houses are waiting for further guidance from AMFI, others have decided against accepting fresh flows.
