Sebi advises mutual funds to stop subscriptions into overseas funds
Securities and Exchange Board of India (Sebi) has advised Mutual Fund (MF) houses to stop subscription in the schemes intending to invest in overseas securities. The move comes as the industry is likely to breach the $7 billion-mark.
However, the investments in overseas exchange traded funds (ETFs) may continue till further communication. The announcement might impact several schemes that invest in foreign stocks.
Industry participants say that Association of Mutual Funds in India (Amfi) will send a detailed communication along with an addendum that will be released soon.
“Amfi has also requested the Reserve Bank of India (RBI) to enhance the industry limits, which might take time. Till then, all the fresh flows whether it is through lumpsum, or systematic investment plan (SIPs) will be stopped by the fund house,” said an official from the industry.
Last year in June, Sebi had increased the limit from $600 million to $1 billion per mutual fund within the overall industry overall limit of US$7 billion. Currently, MFs can make investments in overseas ETFs subject to a maximum of $300 million per MF, within the overall industry limit of $1 billion.
Officials also say regulators have allowed investments into ETFs because the $1 billion limit is yet to fully utilize.
Indian fund houses have launched various international focused Fund of Funds (FoF) in the last few months as such products offer investors diversification towards the global equities. The data from Prime MF database shows that aggregate mutual funds holdings in foreign equity as on December 21 was Rs 34,521.31 crore.
Recently, Motilal Oswal Asset Management Company (AMC) had temporarily halted lump-sum subscription and switch-ins under its three international schemes, to manage overseas investment limits.
In the last one-year, fund houses have launched 23 international focused funds. In the last one-year, US focused funds have given returns in the range of 18%-23%, shows the data from Value Research.
