Mutual funds allowed to resume investment in global stocks. How will it benefit investors?

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Mutual funds allowed to resume investment in global stocks. How will it benefit investors?

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Market regulator Sebi has permitted mutual funds to invest in foreign stocks within the aggregate mandated limit of $7 billion for the industry. According to industry experts, this move will help long-term MF investors to reap the benefit of global stocks being available at discounted price.
Mutual fund investors who believe in a diversified portfolio can now go for the flexi mutual funds, which has a mandate to invest in global markets up to 30 per cent of their net exposure, they said. The capital market regulator has not increased the investment limit and it has only allowed investment resumption by MF houses in global equities as their limit of exposure had come down after the recent sell-off in equity markets.

The approval has come in the wake of a major correction in global equities market that brought down the valuation of international stocks and redemption from the schemes.

On what kind of mutual fund investors will benefit from this decision, experts said MF investors with a long-term time horizon will be the major beneficiary amid a higher possibility of slowdown in the US economy due to high inflation and rising commodity prices. In such a situation, global equity markets including India is expected to remain highly volatile in short to medium term.

A mutual fund house launching a new scheme and intending to invest overseas is required to specify the amount it will invest outside India. Following the Sebi’s direction, several fund houses like PPFAS Mutual Fund, DSP Mutual Fund and Edelweiss Mutual Fund, had stopped accepting inflows into their certain schemes with international mandates.

According to the mutual funds investment rules, domestic mutual fund houses can invest up to $7 billion in global stocks and an additional $1 billion in exchange-traded funds (ETFs).

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