The Securities and Exchange Board of India (SEBI) has asked the Association of Mutual Funds of India (AMFI) to stop accepting inflows into funds that invest in overseas ETFs. The capital market regulator has also asked mutual fund houses to value the utilisation of overseas investment limits at the cost of acquisition and not as per current market prices, Moneycontrol reported.
Sebi has written a letter to AMFI on March 20 conveying the new directive, which has then conveyed the message to the fund houses.
In 2022, the AMFI had restricted mutual fund houses from accepting fresh lumpsum investments in schemes dedicated to investing in overseas stocks. The industry body asked the MF houses to stop accepting fresh systematic investment mandates from the investors.
The directive to stop subscriptions was mainly on account of the mutual fund industry crossing the mandated limit of $7 billion for overseas investments. This aside, there is a separate limit of $1 billion for investing in overseas ETFs.
Following this, AMFI had made representations to enhance the limit, particularly after the rise in remittances through the Liberalised Remittance Scheme (LRS) by HNIs and UHNIs.
There are two categories of MF schemes that channel investments from foreign markets. The first type involves mutual funds directly acquiring shares from global markets. These have a cap of $7 billion. The second one involves Fund of Funds, which procures units from overseas Exchange Traded Funds (ETFs), subject to a limit of $1 billion.
The operational protocol necessitates that firms managing these specific Fund of Funds or ETFs desist from accepting additional capital if it is intended for investment purpose in overseas ETFs.
There are around 70 schemes focused on overseas investing. Of these, Motilal Oswal Nasdaq 100 FOF is the biggest scheme with Rs 4,533 crore of investments.
Indian mutual funds provide an array of selections under the scope of international Exchange-Traded Funds (ETFs). Diversified offerings concentrate on areas, such as emerging markets, ASEAN countries, Europe, and Asia Pacific excluding Japan. These portfolios also extend to global opportunities. Moreover, country-specific funding options predominantly target economies like Brazil, China, Japan, and the US equities market. A selection of these funds further concentrates on various investment themes including but not limited to real estate and commodities.
