Sebi asks mutual funds to stop fresh subscriptions in overseas ETFs from April

Mar 21, 2024

Synopsis
In a communique to mutual fund houses, the industry body Association of Mutual Funds of India has said investments in non-ETF overseas securities may continue till further notice. The regulator has issued these instructions to AMFI, which in turn, has passed on the message to fund houses.

As the $1 billion investment limit is about to get breached, markets regulator Sebi has told asset management companies (AMCs) to stop fresh subscriptions in overseas ETFs with effect from April 1, 2024, according to sources aware of the development.

In a communique to mutual fund houses, industry body Association of Mutual Funds of India (AMFI) has said investments in non-ETF overseas securities may continue till further notice. The regulator has issued these instructions to AMFI, which in turn, has informed it to fund houses.

Mutual funds have also been asked to value the utilisation of overseas investment limits at the cost of acquisition and not as per current market prices.

RBI regulates fund inflows and outflows and currently, there is an overall industry-level limit of $7 billion for mutual funds that invest outside India. After the industry breached this limit in February 2022, mutual funds were asked to stop accepting fresh flows.

However, later in 2023, global markets witnessed a sharp correction which led to a reduction in the valuation of international stocks. This reduced the cumulative investments made by international mutual fund schemes and created scope for fresh investments in this category.

Based on this drop, RBI again allowed fresh inflows into the international schemes subject to certain restrictions which led to some fund houses accepting fresh investments.

When it comes to overseas ETFs, the limit is $1 billion.

[The Economic Times]