International mutual fund schemes see fresh round of restrictions

Nippon India, Mirae Asset stop taking fresh investments in their international schemes

International mutual fund (MF) schemes are seeing a fresh round of restrictions on investments as the foreign investment limit remains capped at $7 billion.

Fund houses, which first got close to breaching the investment limit in January 2022, have been opening their schemes for inflows as and when redemptions create room for fresh foreign investment.

Last week, Nippon India MF announced that four of its schemes — US Equity Opportunities Fund, Japan Equity Fund, Taiwan Equity Fund and ETF Hang Seng BeES — will be closed for incremental investments from February 26.
 

In January, Mirae Asset MF stopped taking fresh investments in its NYSE FANG+ ETF, S&P 500 Top 50 ETF, Hang Seng TECH ETF and their corresponding fund of funds (FoFs).

Fund houses have been waiting for a hike in investment limit for the past two years. The decision on this has to be taken by the Reserve Bank of India (RBI). 

Last month, RBI Governor Shaktikanta Das said the call on raising the MFs' international investment limit will be taken once the central bank is confident the currency is stable on a durable basis.
 

On an aggregate basis, international funds have seen net outflows this financial year. FoFs investing overseas have seen nearly Rs 3,000 crore outflow during the April 2023-January 2024 period.

According to MF officials, international schemes have lost some sheen after the change in taxation.

International schemes along with debt funds enjoyed indexation benefits prior to March 2023. Now, the returns are taxed at the investor's slab rate.