MFs realign international offerings after Sebi diktat on subscriptions

On Friday, market regulator had, through Amfi advised stopping of subscriptions in such schemes to avoid breach of overall cap of $7 bn for investment in overseas securities

Mutual fund (MF) houses have started realigning their overseas product offerings after the Securities and Exchange Board of India (Sebi) advised them to stop subscriptions.

PPFAS Asset Management has decided to temporarily suspend the transactions in Parag Parikh Flexi Cap Fund with effect from February 02, 2022. While new lumpsum and systematic investment plans (SIPs) will not be accepted from Wednesday, existing SIPs and systematic transfer plans (STPs) will continue.  

While the new fund offer (NFO) of ICICI Prudential Strategic Metal and Energy Equity Fund of Fund has been pre-closed as at the end of January 28, 2022.

On Friday, the market regulator, in a communication to industry body Association of Mutual Funds in India (Amfi) had advised stopping of subscriptions in schemes intending to invest in overseas securities with immediate effect to avoid breach of industry-wide limits of $7 billion for investment in overseas securities.

However, the investments in overseas exchange traded funds (ETFs) may continue as the $1 billion limit is yet to be fully utilised. Currently, MFs can make investments in overseas ETFs subject to a maximum of  $300 million per MF, within the overall industry limit of $1 billion.

In June 2021, Sebi had increased the limit from $600 million to $1 billion per mutual fund within the overall industry overall limit of $7 billion.  Market participants say that Amfi has also requested the Reserve Bank of India (RBI) to enhance the industry limits.

Even DSP MF had recently announced that DSP Global Innovation Fund of Fund will be investing 50 per cent each into the iShares PHLX Semiconductor ETF and iShares NASDAQ 100 UCITS ETF. The original design of the fund was to invest 30 per cent in two international ETFs and 70 per cent in four active international funds.

Wealth managers also say that this rule will have an adverse impact to industry and the investors.

“International equities have low correlation to Indian equities and hence provide diversified risk/return. Also, stopping outflows to foreign investments creates a trust issue with foreign participants and ecosystem and reduces India’s competitiveness on global front,” Vaibhav Porwal, co-founder, dezerv—a wealth management company.

Recently, Motilal Oswal Asset Management company (AMC) had temporarily halted lump-sum subscription and switch-ins under its three international schemes, to manage overseas investment limits.

Investing into international funds had been a success in the last few years and investors needed diversification in their portfolio. The data from primemfdatabase shows that aggregate mutual funds holdings in foreign equity as on December 21 was Rs 34,521.31 crore.