Fund houses start accepting fresh inflows in overseas funds

By Ravi Samalad |  22-06-22 | 

Mutual fund houses have resumed accepting fresh investments like Systematic Investment Plan (SIP), Systematic Transfer Plan (STP), switches, and lumpsum in overseas funds. Some fund houses will allow only lumpsum investments.

Securities and Exchange Board of India (SEBI) has allowed fund houses to invest in overseas stocks and funds up to the headroom available till February 1, 2022. Essentially, whatever headroom is available due to redemptions post-February 1, 2022, till now, can be used for allowing fresh subscriptions.

However, the current cap on the overseas investment limit remains. The existing overseas investment industry limit set by RBI is $ 7 billion, plus $ 1 billion for foreign Exchange Traded Funds (ETFs).

This comes at a time when the global markets have seen correction due to fears of recession. The NASDAQ 100 Index is down almost 30% YTD as of June 21, 2022. The S&P 500 is down -21% YTD.

From June 27, 2022, Mirae Asset Mutual Fund has allowed lumpsum investments under its three schemes with a cap of Rs 2 lakh per investor, per day, per scheme. These schemes are Mirae Asset NYSE FANG+ ETF Fund of Fund,  Mirae Asset S&P 500 Top 50 ETF Fund of Fund, and Mirae Asset Hang Seng TECH ETF Fund of Fund. Mirae Asset said that this cap is imposed to ensure that retail investors get an equal opportunity to invest in its international funds. Existing SIPs and STPs will remain paused. No new SIPs, switches and STP registrations will be allowed in these schemes.

Parag Parikh AMC said that it has not sold any foreign investments and brought back funds and hence cannot remit funds outside. “We will not be investing more in overseas investments pending limit increases.”

Most other fund houses have resumed fresh investments in their overseas funds. Investors can continue to buy and sell international Exchange Traded Funds (ETFs) on the exchanges. But no new units will be created. Investors can continue to redeem or switch out from international fund of funds.

The appetite for overseas funds has increased dramatically in the recent past. Reflecting this trend, the assets under management in the overseas fund of funds category have increased from just Rs 3,550 crore in May 2020 to Rs 20,411 crore as of May 2022. Currently, there are 46 international Fund of Funds.

Also, some domestic equity funds have started investing up to 30% in overseas stocks to provide an international flavour to investors.

But fund houses are unable to cater to this demand as they await regulatory clearance to increase overseas investment limit by the Reserve Bank of India (RBI).

Barring DSP World Mining Fund and Aditya Birla Sun Life Commodities Equity – Global Agri Fund, all other funds have delivered negative return in the range of -1.48% to -42.16% over a one-year period as of June 21, 2022.

Funds which have corrected the most over 1-year period                   

Why international diversification is necessary
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