MFs resume fresh investments in overseas funds

Many 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 Rs. 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 Rs. 100 crore limit again.