Just when the euphoria around global diversification had peaked, the market regulator Sebi ended the party in February, 2022. A temporary relief, however, has just been accorded. The Sebi has allowed asset management companies (AMCs) to start accepting fresh flows in international mutual fund schemes investing in overseas stocks. It had barred AMCs to invest in overseas stocks to avoid breach of industry-wide overseas limits as allowed by the central bank RBI.
Notably, mutual funds can make overseas investments up to $1 billion per fund house, with the overall industry limit of $7 billion.
The temporary relief has come in the wake of a recent fall in the global and domestic market that has triggered redemptions in the MF schemes. The fund houses can collect fresh subscriptions, up to the headroom available without breaching the overall overseas investment limit as on February 1, 2022 at the mutual fund level. It means only those MF schemes which have liquidated their positions in overseas securities primarily for meeting redemption requirements are authorised to make fresh investments. For example, PPFAS Mutual Fund didn’t register major redemptions over the last couple of months, hence it will not be accepting fresh flows.
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“We have not sold any foreign investments and hence cannot remit funds outside. We will not be investing more in overseas investments pending limit increases,” says PPFAS Mutual Fund in a tweet.
Motilal Oswal Mutual Fund is also not accepting fresh money for the same reason.
Fund houses such as Edelweiss AMC, ICICI Prudential AMC, Nippon India Mutual Fund, PGIM India Mutual Fund and Mirae Asset Mutual Fund have informed investors about fresh subscriptions. Some are accepting lumpsum, switch-ins and fresh registration of SIP/STP while others have allowed only existing investors to run their SIPs. Mirae will be accepting only lumpsum up to ₹2 lakh per PAN card per day.
Approach your fund house before taking an action
"Investors should use this opportunity to increase their exposure to international equities. As major international markets like the US and China have witnessed steeper corrections than Indian markets, investing in international funds would allow them to invest in quality global equities at attractive valuations. Renewed investments would also allow existing investors of international funds to average their existing investments at much lower NAVs,” says Naveen Kukreja, CEO & Co-founder, Paisabazaar.
It is to be noted, however, the temporary relief is not enough. Rough estimates suggest only about a headroom of hundreds of millions before the industry limit is closer to be breached again.
It is time that the regulator takes a permanent action on industry limits. “SEBI and RBI should relax the limits of overseas investments for mutual fund investors in such a way that it should not be enhanced again and again. Best way is to make it as percentage of AUM of mutual fund industry,” says Nishant Batra, co-founder and Chief Goal Planner, Holistic Wealth. To simplify, just as the overall AUM of the industry increases, the limits should also be reset in the same proportion as defined by the regulators.
Meanwhile, you would do well to explore other options of international investments beyond the mutual fund schemes. For example, international ETFs are still accepting fresh flows because they have a separate $1 billion industry limit. You can also take direct exposure in international stocks through your broking firm. Most of the brokerages these days facilitate investments in foreign equities.
“As global macro-economic headwinds and rising inflation have increased the risk of further depreciation of the Indian Rupee, investing in international funds/stocks would allow investors a hedge against any adverse impact of falling rupee on their Indian investments. These funds/stocks would also be an excellent hedge for those investors whose children are pursuing education or planning to pursue education in overseas institutions,” says Kukreja.
Aprajita Sharma is a freelance journalist and a certified financial planner. She can be reached at @apri_sharma on Twitter and LinkedIn.