New limit for international mutual funds to be redemption-based

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International mutual fund schemes will be allowed to reinvest in stocks of overseas-listed companies to the extent of the redemptions and consequent selling of overseas stocks these schemes have seen from February 1, 2022.

These overseas investing caps came in force from February 1, 2022 and as the limits were not enhanced, most fund houses had to stop accepting flows into their international schemes.

SEBI had specified an overall industry level limit of $7 billion for mutual funds to invest in overseas securities and an individual limit of $1 billion for each scheme.

In a letter to fund houses, industry body – Association of Mutual Funds in India (AMFI) clarified that mutual funds “may utilise the headroom available in the overseas investment limit due to redemptions and consequent sale of overseas securities post February 1, 2022”.

Effectively, the investing limit has not been enhanced, but fund houses are now allowed to invest to the extent that they have sold international equities from February 1 till now.

Limited headroom for mutual funds

Industry executives say that not all schemes will be able to reopen their funds as they wouldn’t have sold international equities. And others might have limited room available as the redemption pressures have not been huge and so the selling has not been much.

Mirae Mutual Fund announced reopening of international schemes but with certain restrictions. SIP investments will not be allowed – existing or fresh. Only fresh lumpsum investments will be allowed, upto Rs 2 Lakh per day, per investor, per scheme.

These will apply to Mirae Asset NYSE FANG+ ETF Fund of Fund, Mirae Asset S&P 500 Top 50 ETF Fund of Fund and Mirae Asset Hang Seng TECH ETF Fund of Fund.

Edelweiss Mutual Fund and Nippon India MF have already announced that they will be accepting inflows into their international schemes.

Edelweiss ASEAN Equity Off-Shore Fund, Edelweiss Greater China Equity Off-Shore Fund, Edelweiss US Technology Equity Fund of Fund, Edelweiss Emerging Markets Opportunities Equity Offshore Fund, Edelweiss Europe Dynamic Equity Offshore Fund, Edelweiss US Value Equity Off-Shore Fund and Edelweiss MSCI India Domestic & World Healthcare 45 Index Fund will be open for fresh SIPs, lumpsum investments and systematic transfer plans.

Nippon India MF has also announced opening up of its schemes – Nippon India US Equity Opportunities Fund, Nippon India Japan Equity Fund, Nippon India Taiwan Equity Fund, Nippon India Multi Asset Fund and Nippon India ETF Hang Seng BeES.

Meanwhile, Parag Parikh Mutual Fund has clarified that since it had not sold any stocks on foreign exchanges, it won’t be able to make any fresh investments in overseas markets.

The Parag Parikh Flexicap Fund remains open, but all the new investor flows will continue to be deployed to buy shares on domestic exchanges.

Motilal Oswal MF will continue with the suspension of fresh investor flows and existing SIPs for its international funds as it has not seen “major redemptions in past few months since restrictions were applied”.

These include Motilal Oswal Nasdaq 100 ETF, Motilal Oswal Nasdaq 100 Fund Of Fund, Motilal Oswal NASDAQ Q 50 ETF, Motilal Oswal S&P 500 Index Fund and Motilal Oswal MSCI EAFE Top 100 Select Index Fund.

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