Mutual Funds Overseas Investments - An analysis of latest update that RBI could raise limit by 25%!
This video is in Hindi and covers the following topics:
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.
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.
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 Securities and Exchange Board of India and the Reserve Bank of India are discussing a proposal to raise the overseas investment limit for Indian mutual funds by as much as 25%, as the funds have nearly reached the current limit of $7 billion, three people familiar with the matter said.
Indian funds which have been buying shares in Google owner Alphabet, Starbucks, Amazon and Apple, and investing in other large global funds, are betting that Indian investors' appetite for global investments would grow stronger.
The Association of Mutual Funds in India (AMFI) has written to the RBI to raise the limit.
The association is said to have already held meetings with capital markets regulator Sebi, which is now discussing the matter with the banking regulator.
“The RBI now has to take the final call in permitting additional limits, which it may do once market volatility recedes globally,” said one of the people.
In any matter related to foreign exchange, the RBI will have to issue a circular, and Sebi will enable it only after that.
The RBI, Sebi and the AMFI did not reply to ET’s emails seeking comment.
Aditya Birla, Axis, DSP, Edelweiss, Templeton, ICICI Prudential, Motilal Oswal, Nippon and SBI are among local fund houses that run mutual fund plans that invest in offshore securities
Collectively, the outstanding foreign assets under management is Rs 46,930 crore, or about $6.23 billion, going by Tuesday’s exchange rate. It is not valued on any uniform exchange rate.
The outstanding limit of $7 billion does not include investments by exchange-traded funds, which have an upper limit of $1 billion where there is still good space for investments.
The $7 billion cap was introduced nearly a decade and half ago, when India’s foreign exchange reserves were around $254 billion. The forex reserves have now swelled to $632 billion, providing comfort to the authorities
In May last year, Sebi doubled the overseas investment limit of alternative investment funds (AIFs) (pooled investment funds which invest in venture capital, private equity, hedge funds, managed futures) to $1.5 billion. The decision was made after consultations with the RBI.
The overseas investment limits were doubled up for AIFs in the past and taking cues from the same, a substantial increase should be on cards since there are ample investment opportunities available globally
Assets managed by the home-grown mutual fund industry expanded to about Rs 38.94 lakh crore in January from Rs 5.5 lakh crore at the beginning of 2008, the year the cap was set
The AUM of the international fund category has grown from Rs 3,688 crore in December 2019 to Rs 39,658 crore as of December 2021
Conditions are very conducive for RBI to increase the limits.
There are around 65 international mutual funds in the Indian market at the moment and all of these have to put their inflows on hold
Apart from these many sectoral, thematic and diversified equity schemes invest in international stocks.
These schemes not only invest in the US market now, but these are also targeted at Japan, Brazil, emerging markets and Europe among others
Since there is no way investors can switch to some other scheme to have international exposure, mutual fund advisors believe that they shouldn't do anything at the moment and continue to stay where they are
Most fund managers and advisors believe that the restriction is only temporary.
Many fund houses have sent communications to their investors to stay put
If you are a new investor who wants to invest in international funds, the only thing you can do is wait.
