“Mutual funds can take over subscriptions and invest in foreign funds”
Even though domestic mutual funds are allowed to invest up to $7 billion in foreign stocks and an additional $1 billion in exchange-traded funds (ETFs), mutual fund regimes can now take over the subscriptions and invest in foreign funds/securities up to the margin. available without breaching overseas investment limits. The Association of Mutual Funds of India (AMFI), in this regard, is requested to communicate it to all Asset Management Companies (AMC).
“AMFI is required to ensure that the total use of the overseas investment limit by each AMC/mutual fund remains capped at the (limit) amount…to ensure compliance with the Sebi Directive “, according to a letter from Sebi to AMFI on June 17.
Earlier this year, the Securities and Exchange Board of India (Sebi) advised mutual funds investing in foreign securities to stop further investing in foreign stocks to avoid exceeding overseas limits at industry-wide.
Mutual funds are allowed to invest overseas, subject to a maximum of $1 billion per mutual fund, within the overall industry limit of $7 billion, according to a dated Sebi circular of June 3, 2021.
Investors enjoy the benefits of the Liberalized Remittance Transfer Scheme (LRS) which allows residents, including minors, to transfer up to $250,000 in current or capital transactions each fiscal year.
“This refers to your email dated June 9, 2022, requesting to review the directive issued by Sebi…and to allow underwriting and investing in foreign funds/securities up to the available margin between the use current overseas investment restrictions and overseas investment limits from EoD of 1 February 2022, at mutual fund level,” the latest letter reads.
Meanwhile, mutual funds focused on investing in fixed income securities saw a net outflow of Rs 32,722 crore in May following the Reserve Bank of India’s (RBI) stance on the monetary policy becoming hawkish to fight inflation fueled by global factors. This follows an inflow of Rs 54,656 crore in April, according to data from the Association of Mutual Funds in India (Amfi).
Additionally, there was a reduction in the number of folios from 73.43 lakh to 72.87 lakh folios between April and May 2022. Debt funds have always been considered a safer investment option, especially when markets are volatile. However, rising interest rates, a volatile macroeconomic environment and higher yields likely impacted investors’ investment preferences in debt markets.
Of the 16 categories of fixed income securities or debt funds, 12 recorded net outflows in May. Net inflows were only seen in four categories – Overnight Fund, Liquid Fund, Gilt Fund & Gilt Fund – with a constant duration of 10 years. Money market funds recorded a large outflow of Rs 14,598 crore in this category, followed by short duration funds (Rs 8,603 crore), ultra short duration funds (Rs 7,105 crore) and low duration funds (Rs 6716 crore).
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