Effect of SEBI restrictions on overseas Mutual Fund invesments

The Association by Mutual Funds in India also instructed the fund houses not to accept any new systematic investments from people who want to invest.

What does it mean for investors now that SEBI has restricted Mutual Fund investments

Why Have Fresh Investments Been Suspended? 

SEBI (Securities & Exchange Board of India) set a limit of $1 billion for each mutual fund house and a total of $37 billion for the whole industry of mutual funds. The mutual fund industry has now almost reached the $37 billion mark, and hence no more fresh investments are being accepted. This will be effective from Feb 1, 2022, onwards. 

In perspective, purchases of securities or listed shares or even overseas schemes are not open for investment by fund houses from the first of February 2022. However, global ETFs are still open for investments. 

Also Read: 4 Ways to Invest in International Equities

Now You Cannot Invest in International Funds (Temporarily)

From February 2 onwards, investors cannot make investments in lump sums or even systematic plans in International schemes. 

Necessary steps will be taken by the fund houses to ensure no such investments are accepted. However, you will be allowed to continue your existing STP and SIP as of now. No incremental investments are allowed overseas by the fund houses. 

Schemes that allocate money between overseas and Indian stocks will have the option of investing incremental amounts in Indian stocks. If the SID allows and the managers opt for it, they can continue accepting SIP and STP inflows. For example, a Mutual Fund by the name of PPFAS stated that they would not be accepting any lump sums or STP and SIP investments anymore. The fund houses will issue an addendum for schemes that get affected by this new advancement. 

Also Read: Investing in International Equity Mutual Funds - Is It For You?

What is The Fund Houses' Reaction to This? 

In three of its International Schemes, Motilal Oswal is not accepting any lump sum investments. These are the Motilal Oswal S&P500 Index Fund, EAFE Top 100 Select Index Fund, and Motilal Oswal MSCI. 

DSP Global Innovation Fund has temporarily altered its investment strategy as well. Earlier they were investing in two ETFs and four mutual funds overseas. Now, it will only invest in the two ETFs

Can You Switch Out and Redeem? 

You have the option of selling the investments that you have undertaken in those funds that have stopped taking any new investments. You also have the option of switching to other schemes. In this regard, there are absolutely no restrictions. It will follow the same taxes and exit load procedure when you redeem or switch. 

When Will Fresh Investments Be Allowed Again?

The present position is that the industry is waiting for a hike limit before you can make any more investments. The RBI (Reserve Bank of India) is working and trying to figure out a solution. It is expected that SEBI will soon announce the limit hike, and you will be able to make fresh investments again. It was June 2021 when SEBI decided to increase the limit in foreign investment for each fund house to $1 billion. 

Also Read: Top Performing International mutual funds to invest from India, Global funds, US and China Equity Funds

What's the Next Step

There is good news if you still want to invest overseas. You can either buy ETFs such as Nasdaq 100 on the Indian Stock Exchange or you can buy overseas stocks directly. However, if you are buying ETF units, you should check the real-time prices as there might be a premium charged until the hike. This is because there will not be any new units created. The current stoppage seems temporary and should soon be fixed. 

When buying stocks overseas, you should do thorough research and decide on which stocks to purchase and which ones you shouldn't. Only invest if you have the right knowledge or get an investment advisor to do it for you. 

However, another option is to wait for the resumption until the hikes are in place. 


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