‘Mutual Fund Schemes May Resume Subscriptions, Make Investments In Overseas Funds’

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Even as domestic mutual funds are allowed to invest up to $7 billion in overseas stocks and an additional $1 billion in exchange-traded funds (ETF), the mutual fund schemes may now resume subscriptions and make investments in overseas funds/ securities up to the headroom available without breaching the overseas investment limits. The Association of Mutual Funds of India (AMFI), in this regard, is advised to communicated this to all asset management companies (AMCs).

“The AMFI is required to ensure that the total utilisation of the overseas investment limit by each AMC/ mutual fund shall remain capped at the amount (limit)…in order to ensure compliance with the Sebi directive,” according to a letter by Sebi to the AMFI dated June 17.

The Securities and Exchange Board of India (Sebi) earlier this year advised mutual funds investing in overseas securities to stop further investments in foreign stocks to avoid breach of industry-wide overseas limits.

Mutual funds are allowed to make overseas investments, subject to a maximum of $1 billion per mutual fund, within the overall industry limit of $7 billion, according to a Sebi circular dated June 3, 2021.

Investors are availing the benefits under the liberalized remittance scheme (LRS) that allows resident individuals, including minors, to remit up to $250,000 in current or capital account transactions, every fiscal year.

“This has reference to you email dated June 9, 2022, requesting to review the directive issued by Sebi…and permit subscription and make investment in overseas funds/ securities up to the headroom available between the current overseas investment utilisation and overseas investment limits as of EoD of February 1, 2022, at the mutual fund level,” the latest letter said.

Meanwhile, mutual funds focused on investing in fixed-income securities witnessed a net outflow of Rs 32,722 crore in May in the wake of Reserve Bank of India (RBI) stance on monetary policy turning hawkish to tackle inflation driven by global factors. This comes following an inflow to the tune of Rs 54,656 crore in April, data from the Association of Mutual Funds in India (Amfi) showed.

In addition, there has been a reduction in the number of folios from 73.43 lakh to 72.87 lakh folios between April and May 2022. Debt funds have always been considered as a safer investment option, especially during volatile markets. However, rising interest rates, a volatile macro environment and higher yields have likely impacted investors’ investing preferences within debt markets.

Out of the 16 fixed-income or debt fund categories, 12 witnessed net outflows in May. The net inflows were seen only in four categories — Overnight Fund, Liquid Fund, Gilt Fund & Gilt Fund — with 10 year constant duration. Money market funds saw a significant outflow of Rs 14,598 crore in this category, followed by short-duration funds (Rs 8,603 crore), ultra-short-duration funds (Rs 7,105 crore) and low-duration funds (Rs 6716 crore).

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