MFs investing overseas may have to stop further subscription

Source : Mint

The suspension is likely to be temporary and would be revoked once the limits are enhanced by the regulator.

Mutual funds investing in overseas securities have been advised by the Securities and Exchange Board of India (Sebi) to stop further subscriptions to avoid breach of industry-wide overseas limits, two industry executives independently confirmed on the condition of anonymity.

Franklin Templeton Mutual Fund (FTMF) released a notice on Saturday announcing suspension of lump-sum subscription, switch-ins as well as fresh registration of SIP/STP for its three overseas funds – Franklin India Asian Equity Fund, Franklin India Feeder -Franklin U.S. Opportunities Fund and Franklin India Feeder -Templeton European Opportunities Fund – after 28 January, 2021.

The asset management company’s (AMC’s) move follows that of Motilal Oswal AMC, which also suspended lump-sum investments into its overseas funds – S&P 500 Index Fund, Nasdaq Fund of Funds, and Motilal Oswal EAFE Top 100 Select Index Fund – with effect from17 January, 2022.

However, later, a senior FTMF official said that the fund house is withdrawing the notice of suspension, pending a decision by the Association of Mutual Funds in India (AMFI) that is expected to give industry wide guidance on this aspect next week.

As per a Sebi circular of 3 June, 2021, mutual funds can make overseas investments up to a maximum of US$1 billion per mutual fund, with the overall industry limit of US$ 7 billion.

The breach of overall industry limit may also impact investments of domestic funds as well, such as Parag Parikh Flexi-cap Fund, having exposure to international securities.

In case of investments into overseas Exchange Traded Funds (ETFs), the limit, as per a June 2021 Sebi circular, has been set at US$300 million per mutual fund, within the overall industry limit of US $ 1 billion. Investments in overseas ETFs are likely to continue without any restrictions.