Mutual Funds Overseas Investments - A simple analysis of latest restrictions by SEBI

This video is in Hindi and covers the following topics: SEBI ने Mutual Funds की Overseas Investments पर restrictions लगायी According to a Sebi circular of 3 June 2021, Mutual funds can make overseas investments up to $1 billion per mutual fund, with the overall industry limit of $7 billion. There is a separate limit of $1 billion for invest in overseas ETFs. SEBI had increased the foreign investment limit for each mutual fund house to $1 billion from $600 million. The overall limit for the mutual fund industry was set at $7 billion. While the ETF limit is still some distance away, the limit of $7 billion is likely to get exhausted soon. With the sharp inflow in overseas investment, Industry sources said mutual funds have crossed 95% of this limit The Securities and Exchange Board of India (Sebi) has advised mutual funds investing in overseas securities to stop further investments in foreign stocks to avoid breach of industry-wide overseas limits Following the Sebi directive, the Association of Mutual Funds in India (Amfi) has asked mutual funds to stop lump sum and fresh systematic investments into such schemes from February 2, according to a circular sent to mutual funds on Sunday. However, existing SIPs and STPs have been allowed to continue. In other words, the total utilisation by each AMC of the overseas investment limit shall be capped at the amount as of EOD of February 1, 2022, in order to ensure compliance with the Sebi direction Mutual fund schemes investing in overseas ETFs, however, can continue accepting investor money as this category has a separate limit, which is yet to be breached. The suspension is likely to be temporary and could be revoked once the limits are enhanced by the regulator. It is up to the Reserve Bank of India to increase this limit and industry sources expect a decision soon. PPFAS (Parag Parikh Financial Advisory Services) Mutual Fund had stopped accepting inflows into PPFAS Flexicap Fund, which invests up to 35% of its corpus in foreign stocks, primarily stocks of US companies DSP Global Innovation Fund of Fund, which was to invest in a mix of four active funds and two ETFs, will invest only in ETFs till the limit is enhanced. Franklin Templeton Mutual Fund released a notice on Saturday announcing suspension of lump-sum subscription, switch-ins, and fresh registration of SIP/STP for its three overseas funds, Franklin India Asian Equity Fund, Franklin India Feeder-Franklin US Opportunities Fund and Franklin India Feeder -Templeton European Opportunities Fund, after 28 January 2021. The fund house temporarily withdrew the notice, but may be forced to reinstate it after the Amfi guidance. Motilal Oswal AMC, which also suspended lump-sum investments into its overseas funds (Motilal Oswal S&P500 Index, MSCI EAFE Top 100 Select Index and Nasdaq 100 Fund of Fund) with effect from 17 January. Inflow into global Fund of Funds increased multifold to ₹1.86-lakh crore last year against ₹80,862 crore in 2020. In fact, the increase is significantly high compared to inflow of ₹8,424 crore in 2019 and ₹2,661 crore registered in 2018. Interestingly, investment in the US-focussed funds garnered the maximum investment of ₹89,642 crore against ₹45,053 crore recorded in 2020 while China and other emerging markets followed with mop-up of ₹15,280 crore (₹4,946 crore) and ₹3,005 crore (₹1,466 crore). Experts believe that the restriction is a big negative for investors. Markets being volatile right now, whether it is China or the US. This is the right opportunity to start investing in segments having reasonable or low valuations, especially lump sum. This is kind of a lost opportunity. Industry experts are of the opinion that Sebi and the Reserve Bank of India would soon increase the limit to overseas investments across fund houses The global market capitalization is close to $93 trillion and India represents 3% of that market cap In addition, India has seen record foreign asset inflows and increase in foreign reserves According to sources, the market regulator intends to increase the industry-wide limit from $7 billion to $12 billion or $15 billion. Investors who seek alternate ways to invest in overseas securities may avail of RBI’s liberalized remittance scheme. Under the LRS, resident Indians can remit up to $250,000 in a financial year towards purchase of foreign securities and funds in foreign currency. This limit is separate and does not fall under Sebi’s current limit of $7 billion for Indian mutual funds. However, for retail mutual fund investors who want to cut the risk of direct investment, there may not be any other option but to wait for Sebi increase the overseas investment limit. If someone is looking to have global exposure, experts think they should wait and not just jump into any domestic fund at this point of time

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