Foreign investments

MF body asks fund companies to freeze foreign investment

MUMBAI: The Association of Mutual Funds in India (Amfi) on Sunday called on all fund companies to halt further overseas investment, effective February 2. The move came after Indian fund companies together reached Sebi’s $7 billion aggregate limit for such investments. . Some of the fund houses have already restricted inflows into schemes that invest overseas. Industry players, however, said there were enough indications that the issue would soon be resolved unless the RBI was unwilling to let Indians invest overseas through this route.
According to A Balasubramanian, chairman of industry trade body MF Amfi, it is understood the government has raised that limit to $15 billion. This may be notified soon, both by the government and the RBI. “Once it is notified, it will be business as usual. Therefore, one has to wait for clarity on this issue,” said Balasubramanian, who is also CEO of Aditya Birla MF.
According to an industry source, last week Sebi inspected MFs’ total investment positions in overseas assets and found that the limit was fully utilized. Subsequently, he asked fund companies to limit additional investments abroad, which led to the Amfi directive. The $7 billion limit was set in June 2021, with the limit for individual fund houses set at $1 billion.

Sources further said that the government had already proposed to more than double the limit from $7 billion to $15 billion, but that the improvement would be spread over a few years. The enhanced limit will only be applicable after the RBI issues a circular. “Sebi officials felt that until such a circular is issued, fund houses should not make any additional overseas investments,” the source said. A government statement could also come during the finance minister’s budget speech on Tuesday, the source said.
Balasubramanian, however, clarified that the current situation is not a big challenge and he hopes it will be resolved soon. Indian fund houses have been investing overseas for more than a decade. The trend, however, has accelerated in the past two years after fund companies began launching exchange-traded funds and feeder funds to invest in programs that are sold and managed overseas.
Another noticeable trend is that of existing equity funds investing part of their corpus abroad. Although Sebi allowed fund houses to invest up to 15% of their total corpus overseas a decade ago, for several years there were only a handful of schemes that used this limit. However, a large number of Indian fund managers have only taken this route in the last three years. These two factors combined have led Indian fund companies to approach the $7 billion limit imposed by Sebi for investing abroad.