Securities and Exchange Board of India (SEBI) has put restrictions on foreign investments by mutual funds. Thereafter, the industry body, Association of Mutual Funds in India decided to set a value threshold for all such investments.
Recent developments
– The Association of Mutual Funds (AMFI) has asked asset management firms not to invest in overseas securities.
– As per new RBI guidelines, mutual funds registered with SEBI (Securities and Exchange Board of India) can no longer invest overseas. The overall cap is set at $7 billion. This cap has already been reached, and hence further foreign investments either through fresh lump-sum or SIPs have been paused.
– Investments in exchange-traded funds have a separate cap of $1 billion which is not affected by these restrictions on foreign investments.
Repercussions
– PPFAS Mutual Fund had previously suspended accepting inflows into PPFAS Flexicap Fund, which invests up to 35% of its corpus in international equities, mostly US technology stocks. However, since 15th March 2022, it has started accepting fresh subscriptions due to the lack of clarity on when such restrictions on foreign investments would be lifted.
— Even DSP Investment Managers have switched from underlying funds to exchange-traded funds in its DSP Global Innovation Fund of Funds (ETFs).
— A volatile market is usually a good time to increase one’s exposure. Despite this, we believe that investors should rarely look for opportunities to time the market and instead continue to invest in a disciplined manner via a SIP.
How to invest overseas then?
Meanwhile, investors looking for other means to invest in overseas equities can take advantage of the RBI’s Liberalized Remittance System (‘LRS’). Under the LRS, resident Indians can remit up to $250,000 each fiscal year toward acquiring international securities and funds denominated in foreign currency. This cap is separate from SEBI’s existing maximum of $7 billion for Indian mutual funds.
Indian investors have recently become more aware of the importance of diversification by investing in the international market. While direct stocks and ETFs are available, we hope that the regulator will raise the limits so that the route to investing through mutual funds remains open. Investors have plenty of options to diversify globally and build a sustainable portfolio for long-term wealth creation.
This is where Daulat can help you. Our fully-managed, low-cost, and diversified model portfolios — DMAS — invest across asset classes, geographies, and styles to generate higher risk-adjusted returns.
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