Investors can once again put money in international funds after SEBI allowed mutual fund schemes to resume subscriptions and make investments in overseas funds/ securities. But, there is a caveat. The regulator has allowed fund houses to invest only up to the headroom available without breaching the overseas investment limits as of February 1, 2022 end of day at the mutual fund level.
According to industry body AMFI, fund houses can utilise the headroom available in the overseas investment limit created due to redemptions and consequent sale of overseas securities post February 1, 2022.
While there is no clarity on the exact quantum of headroom available, industry sources say it is not big. So, if you are an existing investor in one of the schemes looking to lower your average cost given that global markets have fallen in the past few months or simply a newbie wanting to add international funds, you'd better hurry. So far, about nine mutual fund houses, including ABSL MF, Edelweiss MF, Franklin MF, ICICI Pru MF, Nippon MF and PGIM MF, have come up with announcements related to about 30 schemes (see table).
Most of the funds have resumed lumpsum subscription and systematic registration, including SIP and STP. Interestingly, Mirae MF for its Mirae Asset NYSE FANG+ ETF FoF, Mirae Asset S&P 500 Top 50 ETF FoF and Mirae Asset Hang Seng TECH ETF FoF have allowed lumpsum transaction of a maximum of ₹2 lakh per day per investor per scheme.
A few more fund houses such as Kotak and DSP may make announcements soon. Some fund houses, including Motilal Oswal, have said they did not see any notable redemptions in their overseas funds and so have decided against opening the doors of their schemes to investors.
Year-to-date while the domestic large-cap, mid-cap and small-cap fund categories have fallen 10-16 per cent, the international fund category is down nearly 18 per cent.
Way back in 2008, SEBI and RBI set an industry-wide limit of $7 billion on investments in foreign funds and securities for the MF industry. Given the rising investor appetite over time, this limit was obviously breached. Do note fund of funds investing in overseas exchange traded funds have a separate limit of $1 billion and this is intact so far.
Earlier this year, SEBI advised MFs investing in foreign securities to stop further investments to avoid breach of the limit, with effect from February 2, 2022. Following SEBI’s directive, AMFI asked the fund houses to stop accepting fresh investments for schemes that invest in international securities.
After four months, SEBI vide its letter dated June 17, 2022, has permitted mutual funds to accept subscriptions and to invest in overseas funds /securities.
"Mutual fund schemes may resume subscriptions and make investments in overseas funds/ securities up to the headroom available. without breaching the overseas investment limits utilised by MFs/AMCs as of EOD of February 1, 2022 at the mutual fund level.
Further, total utilisation of the overseas investment limit by each AMC/ mutual fund shall remain capped at the amount as of EOD on February 1, 2022 to ensure compliance with the SEBI directive. Thus, the AMCs may utilise the headroom available in the overseas investment limit created due to redemptions and consequent sale of overseas securities post February 1, 2022," AMFI said in a statement.