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Markets regulator Securities and Exchange Board of India (SEBI) has directed mutual fund houses to stop accepting any more inflows in schemes that invest in overseas exchange-traded funds (ETFs), starting April 1, 2024. SEBI has issued these directions as inflows in these overseas ETFs have come close to the mandated investment limit of $1 billion in foreign ETFs.
The capital market regulator has asked asset management companies (AMCs) not to accept funds in mutual fund plans that invest in overseas exchange-traded funds (ETFs) as the upper limit of $1 billion for these investments is close to being breached.
“The mutual fund industry has already reached 95 per cent or ($ 950 million) of the $1 billion limit. This is the reason why SEBI has asked mutual funds to temporarily stop accepting money in overseas ETFs,” said a senior executive at a mutual fund house.
The regulator has asked to stop fresh inflows in such schemes from April 1.
What is the overall limit for mutual funds to invest in overseas ETFs?
Currently, there is an overall cap of $7 billion set by the Reserve Bank of India (RBI) for fund houses to invest in overseas stocks or mutual funds. MFs are also permitted to invest up to $1 billion in overseas exchange traded funds. Mutual fund industry has been demanding the RBI to hike the overseas investment limit of $7 billion.
In January this year, when RBI Governor Shaktikanta Das was asked about plans to revisit the limit on the overseas investment by mutual funds, he said the call on it will be taken when RBI is confident that the rupee has stabilized on a durable basis.
“This request has been coming to us from the mutual fund industry from time to time. We will take the call at the right time. It (rupee) has to be stable on a durable basis,” Das said, when asked if RBI was looking to revise the limit.
What is an exchange traded fund?
An ETF, or exchange traded fund, is a marketable security that tracks an index, a commodity, bonds, or a basket of assets like an index fund. Unlike regular mutual funds, an ETF trades like a common stock on a stock exchange. The traded price of an ETF changes throughout the day like any other stock, as it is bought and sold on the stock exchange. The trading value of an ETF is based on the net asset value of the underlying stocks that an ETF represents.
ETFs typically have higher daily liquidity and lower fees than mutual fund schemes, making them an attractive alternative for individual investors. ETFs are considered to be more tax efficient compared to other mutual fund schemes. There are mainly five types of ETFs – equity ETF, bonds ETF, commodity ETF, international ETF and sectoral/thematic ETF.
© The Indian Express Pvt Ltd
First uploaded on: 23-03-2024 at 13:17 IST
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