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In a blow to the mutual fund industry, SEBI (Securities and Exchange Board of India) directed AMCs (asset management companies) to stop accepting inflows in funds that invest in overseas ETFs (exchange-traded funds) from April 1, 2024.
This step was taken in anticipation that the $1 billion (roughly Rs 8,311 crore as of March 21, 2024) limit for the overall industry might be breached soon, as per officials in the industry.
A letter from AMFI (Association of Mutual Funds in India) to fund houses stated that AMCs should stop accepting subscriptions to funds investing in overseas ETFs from April 1, 2024. However, subscriptions to funds investing in overseas securities other than international ETFs may continue until the regulator communicates further.
As per the regulations, mutual funds can make overseas investments within the industry limit of $7 billion ($1 billion limit per mutual fund) and $1 billion for overseas ETFs. In 2022, the mutual fund industry breached the limit of $7 billion in international investments and stopped accepting fresh inflows.
However, in late 2022, when the global financial markets witnessed a major correction that pulled down valuations, fund houses were permitted to invest in foreign stocks, provided they stayed within the mandated limit of $7 billion for the industry.
The last few months have seen international markets such as the US rallying upwards, leading US-focused funds to generate strong returns. In India, the top performer in the international category has been the Mirae Asset NYSE FANG+ETF FoF, delivering 79 per cent returns in 2023.
With SEBI's latest mandate, investors might have to temporarily halt adding an international element to their portfolio until the limits increase.
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