Investment in mutual funds: new inflows of international funds mark a pause

There are several international mutual fund programs available in the market, offering Indian investors exposure to stocks from multiple countries and various themes.

If you invest in mutual funds that invest overseas, you will need to change your foreign investment strategy. SEBI has ordered all asset management firms to stop accepting new inflows into mutual funds that have a mandate to invest in foreign securities without the ability to invest in Indian securities. It remains to be seen when the restriction will be lifted by the regulator.

The reason for ceasing to allow fund companies to raise new funds is the impending violation of the industry-wide overseas investment limit of US$7 billion currently permitted by the RBI . Therefore, temporarily, all new purchases, switch-ins, new SIP or STP registrations cannot be made in international funds. However, existing systematic investments (SIP/STP) in these funds will continue until further notice from the regulator or fund house.

Within the overall industry limit of US$7 billion, mutual funds may invest overseas subject to a maximum of US$600 million per mutual fund program and US$50 million US funds would be reserved for each mutual fund individually. And, for investments in overseas exchange-traded funds (ETF(s), within the global industry limit of US$1 billion, mutual funds may make investments up to a maximum of US$200 million per mutual fund.

There are several international mutual fund programs available in the market, offering Indian investors exposure to stocks from multiple countries and various themes. Some of them include funds investing in US markets, global equities, gold, energy, agriculture in an international context.

In November 2020, market regulator SEBI raised the overseas investment limit for mutual funds. The limit applies to the entire industry and will also have a separate limit for individual mutual funds and exchange-traded funds (ETFs).

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