Ayush Bansal
Image: Value Research
Capital markets regulator Securities and Exchange Board of India (Sebi) has allowed mutual funds (MFs) to resume investing in international stocks within the aggregate mandated limit of $7 billion for the industry.
In January, the regulatory body had asked mutual fund houses to stop taking fresh subscriptions in schemes investing in overseas stocks.
The directive to stop subscription was mainly on account of the mutual fund industry crossing the mandated limit of $7 billion for overseas investments.
Following the Sebi directive, the Association of Mutual Funds in India had asked fund houses to stop accepting flows in schemes investing overseas from February.
The recent meltdown in global stock markets has reduced the cumulative value of investments made by all the mutual fund houses together and the approval comes after AMFI made a request to SEBI for reviewing investment in overseas securities by the MFs.
“Mutual fund schemes may resume subscriptions and make investments in overseas funds/securities up to the headroom available without breaching the overseas investment limits as of end-of-day of February 1, 2022, at the mutual fund level,” Sebi said in a communication sent to Amfi on Friday.
Also, the regulator has asked the Association of Mutual Funds in India (Amfi) to ensure that the total utilization of the overseas limit by each AMC or mutual fund remains capped at the February level.
The regulator’s approval came after Amfi made a request to Sebi for reviewing investment in overseas securities by mutual funds.
Effect on Investors
According to investment experts, this will help long-term mutual fund investors to reap the benefit of global stocks being available at discounted prices.
They went on to add that mutual fund investors who believe in a diversified portfolio can now go for the Flexi mutual funds, which have a mandate to invest in global markets up to 30 percent of their net exposure.
However, they said that the capital market regulator has not increased the investment limit. SEBI has allowed MF houses to resume investing in global equities as their limit of exposure had come down after the recent sell-off in equity markets.
Re-opening of International Funds
In early February 2022, SEBI had directed fund houses to temporarily suspend investments in stocks listed overseas as the overall limit of $7 billion was getting breached.
his forced schemes investing overseas to stop accepting money from investors; be it a lump sum or systematic investment plans (SIPs). This upper limit still stands today; it has not been enhanced. But there is a small change.
SEBI has now allowed mutual fund schemes to resume subscriptions and make investments in overseas funds or securities, selectively.
It has allowed schemes to collect fresh subscriptions, up to the headroom available without breaching the overall overseas investment limit as of February 1, 2022, at the mutual fund level.