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Investors can re-invest in international funds but…

Investors can re-invest in international funds but…

Investors can once again invest in international funds after SEBI resumes subscription to mutual fund schemes and allows investment in foreign funds/securities. But, there is a caveat. The regulator has allowed fund houses to invest only up to the available headroom without violating the foreign investment cap at the mutual fund level till February 1, 2022.

According to industry body AMFI, fund houses can utilize the headroom available in the foreign investment limit created on account of redemption and consequent sale of foreign securities after February 1, 2022.

While there is no clarity on the exact amount of headroom available, industry sources say that it is not huge. So, if you are an existing investor in one of the schemes planning to reduce your average cost in view of the fall in global markets over the past few months or just a newbie looking to add international funds, it is better to hurry up. . So far, around nine mutual fund houses including ABSL MF, Edelweiss MF, Franklin MF, ICICI Pru MF, Nippon MF and PGIM MF have made announcements related to about 30 schemes (see table).

Most of the funds have resumed lump sum subscription and systematic registration including SIPs and STPs. Interestingly, Mirae MF allows one-time transactions up to ₹2 lakh per day per investor per plan for its Mirae Asset NYSE Fang+ ETF FOF, Mirae Asset S&P 500 Top 50 ETF FOF and Mirae Asset Hang Seng Tech ETF FOF Is.

Some more fund houses like Kotak and DSP may announce soon. Some fund houses, including Motilal Oswal, have said that they do not see any significant redemption in their overseas funds and have therefore decided not to open the doors of their schemes to investors.

While domestic large-cap, mid-cap and small-cap fund categories have declined 10-16 per cent year-on-year, the international fund category has declined by nearly 18 per cent.

Back in 2008, SEBI and RBI set an industry-wide limit of $7 billion for the MF industry on investment in foreign funds and securities. Given the increasing appetite of investors over time, this limit was apparently breached. Note that the Fund of Funds investing in foreign exchange-traded funds has a separate limit of $1 billion and remains in place as of now.

Earlier this year, SEBI advised MFs investing in foreign securities to stop further investments with effect from February 2, 2022 to avoid infringement of limits. Following the SEBI directive, AMFI asked fund houses to stop accepting fresh investments for schemes investing in international markets. securities.

After four months, SEBI, vide its letter dated June 17, 2022, has allowed mutual funds to accept membership and invest in foreign funds/securities.

“Mutual fund schemes may resume subscription and invest in foreign funds/securities till the available headroom. Violation of foreign investment limits used by MFs/AMCs at mutual fund level as per EOD dated February 1, 2022” without doing

Further, to ensure compliance with the SEBI directive, the aggregate utilization of foreign investment limit by each AMC/Mutual Fund shall be restricted to the amount of EOD as on February 1, 2022. Thus, AMCs can utilize the available headroom in the foreign investment limit created on account of redemption and sale of foreign securities after February 1, 2022,” AMFI said in a statement.

Published on

22 June 2022

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Investors can re-invest in international funds but…

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