Some Indian MFs resume new investments in foreign funds

Many mutual funds have started accepting new inflows into their foreign funds, after suspending them for nearly five months. In February 2020, asset management companies (AMCs) investing in foreign securities were advised to halt underwriting to avoid exceeding industry-wide limits of $7 billion at the foreign.

Market regulator Sebi has now allowed mutual funds (MFs), with an addendum, to resume subscriptions of international funds and invest in foreign securities.

The total foreign investment of the fund house remains capped at the investment made from February 1st. This implies that any limit available due to redemptions in recent months can be used by AMCs for new contributions. (Funds investing in foreign ETFs have a separate limit of $1 billion which has not yet been exceeded.)

For example, let’s say a fund house has invested 100 crore (purchase cost, not market value) overseas, in February 2022, and subsequently sold some securities due to investor redemptions. The new regulations state that the fund house can now accept inflows until it reaches the 100 crore limit again.

Some fund companies such as Axis Mutual Fund and Motilal Oswal Mutual Fund have not seen major redemptions in their overseas funds in recent months and therefore have not resumed programs.

Some fund houses are prepared to accept entries with certain restrictions. For example, Franklin Templeton only picked up SIPs from existing investors in three of its global funds; Mirae Asset Mutual Fund will only accept lump sum investments in three of its foreign funds with a limit of 2 lakh per person per program per day (see table).

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Note that some of the schemes such as PPFAS Flexi Cap Fund and DSP Value Fund, which only partially invest in international equities, currently have no restrictions on their entries. PPFAS was quick to inform investors that they cannot increase the overseas allocation from their current levels.

Sebi’s decision to allow new investments comes at a time when stock markets around the world are experiencing sharp corrections, opening up a potential opportunity for Indian investors.

Year-to-date (year-to-date) returns for major global indices such as the S&P 500 and the Nasdaq 100 index representing the US market were down 23% and 31%, respectively.

An MSCI Emerging Markets ETF and the FTSE Greater China fell 19% and 16% respectively.

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