Mutual funds can again accept money in international schemes

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The Securities and Exchange Board of India (Sebi) has allowed mutual funds to accept fresh money in international schemes to the extent of the overall industry limit of $7 billion. In a letter to industry body Association of Mutual Funds of India (AMFI) last week, the capital markets regulator said asset managers may resume subscriptions and make investments in overseas funds or securities ‘up to the headroom available without breaching the overseas investment utilization limit’. ET has reviewed the note.

Some mutual funds may however not accept investor flows in these products due to lack of clarity over the limits available.

While there is no estimate of the redemptions in international schemes, mutual fund officials and distributors speculate the headroom to accept fresh flows could be low. This is because international schemes did not witness sharp outflows amid the correction.

“We estimate that the total headroom for the industry will be just 2-3% of the $7 billion limit,” said the CEO of a domestic fund house. This means the industry will be able to add just ₹800-1200 crore of international assets.

Emails sent to Sebi and AMFI went unanswered till the time of going to print.

AMFI, as advised by Sebi, had asked all fund houses to suspend fresh investments in schemes that intend to invest in overseas securities beginning February 2. The regulator has a cap of $7 billion on the mutual fund industry’s investment in overseas stocks. It was believed that mutual funds had crossed the 95% mark. The RBI, which decides on overseas investment rules by domestic individuals and entities, has not allowed a higher ceiling.

ET spoke to top officials of four fund houses who were unsure about how to open up schemes for subscription. Fund officials said mutual funds will have to estimate their limits individually. While some fund houses are waiting for further guidance from AMFI, others have decided against accepting fresh flows

“There is very little headroom available to us as we have already reached our overall fund house limit of $1 billion. We are getting more information,” said a top official with a domestic mutual fund, which runs a large international product.