There is a $ 7 billion limit on the total investment of Indian mutual fund schemes in foreign funds that actually hold the assets. There is a separate $ 1 billion limit for local funds that invest in foreign exchange funds (ETFs). The collapse in the value of some of these schemes has led to demand for higher limits to help investors reduce their average investment costs.
“While Sebi (India’s Securities and Exchange Commission) supports raising the limit to help mutual funds
raise more funds, the central bank is reluctant to raise the limit, “said one.
Regulators may also see no need to raise the limit, as Indians can use other routes, such as the Liberalized Translation Scheme (LRS), which allows local Indians to freely transfer up to $ 250,000 a financial year to invest in abroad, the man said.
The rupee hit a new low of 78.28 per dollar on June 13, hit by large capital outflows from foreign portfolio investors amid a sudden change in global financial market conditions due to the abolition of extremely easy monetary policies to fight inflation. Foreign investors have already sold a record $ 27.3 billion in Indian securities this year. If local investors now also start allocating more resources to foreign stocks, this could further weigh on the local currency and RBI is unlikely to favor this.
RBI and Sebi did not respond to ET’s inquiries.
Overseas mutual fund schemes at the end of last fiscal year reached the prescribed limit of $ 7 billion as investors accumulated to take advantage of the bullish market in the United States. Since then, mutual funds have stopped accepting new money into these schemes because the RBI has not raised the ceiling. The industry was lobbying for a higher limit.
Indian mutual funds provide at least 65 global funds to local investors. They have assets under management of 34,278 rupees ($ 4.39 billion) as of last week, based on their net asset value. Although they can keep any increase in the value of assets over $ 7 billion, the decline in the value of their assets does not allow them to invest more.
Investors who want to add more to foreign investment are excluded due to the nominal limit.
“It is natural for them to diversify their investments abroad, where they are looking for higher returns
shares, ”said a fund manager linked to such an offshore fund.
About four months ago, the Mutual Fund Association of India had written to the RBI requesting an increase in the limit. He also had discussions with Sebi.
These types of funds are of two types: active and passive. While the fund of funds is passive, investments through ETFs are active. Each stock company can use up to $ 1 billion of the outstanding limit and $ 300 million for the ETF each year. It is not valued at a single exchange rate.
Aditya Birla, Axis, DSP,
Franklin Templeton, Kotak and Nippon are among the local funds that manage mutual fund plans that invest in offshore securities, according to data from industrial tracker Value Research.
In the three years to June 16, 2022, some funds such as the DSP World Mining Fund have returned to 21.9%.
Launched in January this year, the ICICI Prudential Metals and Energy Equity plan brought 39% to the second week of June, but a slump in global indices after 40 years of high inflation in the United States dropped it to 22.5% on Friday.