SEBI advises Mutual Funds to stop investment in overseas equities

Market regulator SEBI has asked mutual fund houses to stop taking fresh investments in schemes investing in foreign stocks. This notice was issued by SEBI as the Indian Mutual Fund Industry is close to breaching US $7 billion limit for foreign securities.

In 2021, SEBI had increased overseas investment limits for mutual funds. According to SEBI Circular of 3rd Jun 2021, mutual funds can make overseas investments of up to the US $1 billion per Mutual Fund, within the overall industry limit of US $7 billion. Also, mutual funds can invest in overseas ETFs up to US $300 million per Mutual Fund, within the overall industry limit of US $1 billion.

Since the industry is close to the existing mandated overseas limit, SEBI has asked mutual funds investing in overseas equities to stop investing in foreign securities in order to avoid breach of the overseas investment limit. AMFI has asked mutual funds to stop fresh lump sum investment and SIP into funds that invest in foreign securities from 2nd Feb 2022. However, existing SIPs and STPs are allowed to continue.

Motilal Oswal AMC has already taken this step earlier in Jan as they were close to the limit of US $1 billion per Mutual Fund. They have temporarily stopped lump sum investments and switched money into three international funds - Motilal Oswal MSCI EAFE Top 100 Select Index Fund, Motilal Oswal S&P 500 Index Fund and Motilal Oswal Nasdaq Fund of Funds (FoF).

Franklin Templeton Mutual Fund has also announced that it will suspend the lump-sum subscription, switch-ins, and fresh registration of SIP/STP for its three overseas funds - Franklin India Feeder-Franklin US Opportunities Fund, Franklin India Feeder -Templeton European Opportunities Fund, and Franklin India Asian Equity Fund. The fund house has temporarily withdrawn the notice, but may be forced to reinstate it after the AMFI guidance.

PPFAS Mutual Fund has also decided to suspend fresh lump sum and SIP investments into Parag Parikh Flexi Cap Fund from 2nd Feb 2022. However, existing SIPs and STPs shall continue.

Mirae Asset Mutual Fund has also restricted fresh and existing investment – lumpsum, SIP, STP in six of its schemes - Mirae Asset NYSE FANG+ ETF, Mirae Asset NYSE FANG+ ETF Fund of Fund , Mirae Asset Hang Seng TECH ETF , Mirae Asset Hang Seng TECH ETF Fund of Fund, Mirae Asset S & P 500 Top 50 ETF and Mirae Asset S & P 500 Top 50 ETF Fund of Fund. Application for creation of ETF units shall not be accepted and processed. Existing SIP and STP will be temporarily suspended from 2^nd Feb 2022 but redemption, switch out and withdrawals can be done.

DSP Global Innovation FoF, whose NFO is currently open, was to invest 15% each in iShares Semiconductor ETF and iShares NASDAQ 100 UCITS ETF. Remaining in actively managed funds - 20% each in BGF World Tech Fund and Bluebox Global Technology Fund and another 15% each in Morgan Stanley US Insight Fund and Nikko AM ARK Disruptive Innovation Fund. However, SEBI has now advised to limit its overseas investment to 2 ETFs only till RBI raises the investment limit.

Investment in overseas ETFs can be continued as the current investment is still away from the overseas ETF limit. The suspensions are temporary and will continue till the limit is enhanced.