If you are investing in a mutual fund scheme that invests in overseas ETFs, this news might not make you very happy today.
The Securities and Exchange Board of India (SEBI) has asked mutual fund asset management companies (AMCs) to stop accepting fresh inflows into schemes that invest in overseas Exchange Traded Funds (ETFs) from April 1.
You might be wondering as to why has SEBI made this decision? Well, the answer lies in the rule that limits the investments an Indian mutual fund scheme can make in overseas ETFs.
Why this move?
As per rules, Indian mutual fund schemes can invest up to $ 1 billion in overseas ETFs and this level is about to be breached. This is why SEBI has asked mutual funds to stop accepting fresh investments into schemes investing in overseas ETFs.
SEBI has also written to the Association of Mutual Funds in India (AMFI) in this regard through a letter dated March 20, according to the report.
However, a report by The Economic Times says that AMFI has told mutual fund AMCs that they can continue to invest in non-ETF overseas securities till further order.
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How mutual funds invest overseas
Mutual funds deploy two ways to invest in overseas markets. Either they directly buy overseas shares or they buy units of ETFs abroad. Generally a Fund of Fund invests in units of ETFs abroad.
SEBI’s latest direction will make Indian Fund of Funds or ETFs that invest in overseas ETFs to stop accepting money from investors from April 1, 2024.
As many as 77 Indian mutual schemes invest overseas.
Limit on Overseas Securities
As per RBI rules, mutual funds are allowed to invest up to $7 billion in overseas securities. Indian mutual funds reached this limit in January 2022 when AMCs were asked to stop investing in overseas securities. The norm was relaxed in 2023 for mutual funds whose AUM declined due to correction in overseas stocks. However, mutual funds have to comply with the upper limits of overseas investments.
Disclaimer: The above content is for informational purposes only. Please consult a SEBI-registered investment advisor before making an investment decision.
