Sebi increases overseas investment cap for individual MFs to $1 bn

Earlier limit was $600 mn; overall industry limit of $7 billion

The Securities and Exchange Board of India (Sebi) on Thursday revised the overseas investment limit for mutual funds (MFs). The market regulator stated in a circular that MFs can make overseas investments up to $1 billion each, within the overall industry limit of $7 billion.

MFs had made representations to the regulator to increase the investment limit. Last November, Sebi had enhanced the overseas investment limit from $300 million per mutual fund to $600 million.

Industry participants say this announcement was the need of the hour as several MF schemes that were international focused were attracting huge inflows. Sebi in its circular stated, “MFs can make investments in overseas exchange-traded funds (ETFs) subject to a maximum of $300 million per mutual fund, within the overall industry limit of US $1 billion.” Earlier the limit was $200 million per mutual fund.

Indian fund houses have launched various international-focused fund of funds (FoF) in the last few months as such products offer investors the option of diversifying with global equities.

Investing in global markets allows investors to capture disruptive growth through various themes, many of which are not available on the listed markets in India. Global investing, therefore, diversifies the investment portfolio and has the potential to improve their risk adjusted returns.

“The theme of international diversification has been held for a very long time and the assets were going at a rapid pace. Again, the foreign exchange reserve has been healthy for India, so there is no issue on that front, I think it is a wonderful and much-awaited move,” Rajeev Thakkar, CIO, PPFAS MF.

In the last six months, there has been net inflows of over Rs 5,600 crore in FoF investment overseas, and the assets have increased from Rs 7,642 crore last November to nearly Rs 14,000 crore in April 2021.

In April, Mirae Asset Investment Managers India had announced the launch of India’s first FANG+ based products, ‘Mirae Asset NYSE FANG+ ETF’, an open-ended scheme replicating/tracking NYSEFANG+ Total Return Index and ‘Mirae Asset NYSE FANG + ETF Fund of Fund’, an open-ended FoF scheme predominantly investing in Mirae Asset NYSE FANG+ ETF.

FoF is a MF scheme that invests in other such schemes. In these schemes, fund managers hold a portfolio of other mutual funds, instead of directly investing in stocks or debt instruments. Since the start of the current calendar year, around six FOFs have been launched by different fund houses.

Other fund houses like Axis MF had launched Axis Greater China Equity FoF, HSBC MF came out with HSBC Global Equity Climate Change FoF.