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AMFI directs mutual funds to put overseas investments on hold

AMFI directs mutual funds to put overseas investments on hold

Fund houses have been told not to make any incremental investment in overseas funds from February 1 as $7 billion overseas investment limit close to being breached.

AMFI directs mutual funds to put overseas investments on hold AMFI directs mutual funds to put overseas investments on hold

At a time when overseas investments in equities have gained a lot of traction amongst Indian retail investors, mutual funds have been forced to suspend such incremental investments due to regulatory limits being breached. 

On Sunday, the Association of Mutual Funds in India (AMFI), the industry body of mutual fund houses, issued a communication to all fund houses, asking the firms to suspend incremental investments in overseas funds or securities on February 1. This is following a communique by the Securities and Exchange Board of India (SEBI) on this matter. 

“AMCs shall not make any incremental investments in overseas funds or securities beyond what is existing as on February 1, 2022 at respective mutual fund level. In other words, the total utilization by each AMC of the overseas investment limit shall be capped at the amount as of eod of February 1, 2022 in order to ensure compliance with the SEBI direction,” stated the AMFI letter. 

According to the overseas investment limit laid down by the Reserve Bank of India (RBI) and SEBI, fund houses have an overall investment cap of $7 billion. Industry participants say that the investment limit is quite close to being breached given the heightened interest in overseas investments. 

On Sunday, PPFAS MF also said in a communique that it has temporarily suspended transactions in Parag Parikh Flexi Cap Fund. It said that while lumpsum subscription and fresh systematic registration will not be accepted with effect from February 2, existing systematic investment plans (SIPs) and systematic transfer plans (STPs) will continue. 

Recently, Motilal Oswal Asset Management Company had also issued a communique to its investors, stating that it has been “compelled” to “temporarily restrict fresh investments” in three schemes – Motilal Oswal S&P 500 Index Fund, Motilal Oswal MSCI EAFE Top 100 Select Index Fund and Motilal Oswal Nasdaq 100 Fund of Fund – while highlighting the fact that fund house has “inched closer to the investment limit set out by SEBI”. 

It also, however, added that the restrictions will not be applicable to ongoing SIPs, STPs , systematic withdrawal plans (SWPs), redemptions and switch-out applications. 

“We are of the view that the suspension is temporary in nature and we, alongside the rest of the industry are working with the regulator to enhance the foreign investment limits,” added the communique. 

The matter assumes significance as global funds – those that invest in equities in overseas markets – have been seeing a huge interest from investors looking to diversify within the equity segment.  

Not surprisingly, the last few months have seen a flurry of schemes launched by fund houses that invest a part of the assets under management in global markets.

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Published on: Jan 31, 2022, 12:42 PM IST
Posted by: Tarab Zaidi, Jan 31, 2022, 12:37 PM IST