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Foreign Investments Exposure by Mutual Fund Schemes: All you need to know

23 March 2022
7 minutes

There is a buzz in the mutual fund industry about mutual funds houses putting a few of their schemes on hold for fresh inflows. 

Earlier this year, mutual fund houses including Motilal Oswal Mutual Fund, Parag Parikh Mutal Fund, among others have announced a temporary suspension of fresh applications into a few of their schemes. This is because, a few plans (of the respective mutual funds) have invested a portion of the investors’ money in international securities, mostly in US equities.

Motilal Oswal Pauses Existing SIPs/STPs

The fund house suspended a few of its schemes, temporarily, having international exposure. While previously the fund houses intimated to their investors that the existing SIPs/STPs shall continue, in a recent announcement to its investors, the fund house is pausing existing SIPs and STPs as well.

This is applicable on three funds with effect from 01 April 2022, as per the fund house’s statement. These are Motilal Oswal S&P 500 Index Fund, Motilal Oswal Nasdaq 100 Fund of Fund, and Motilal Oswal MSCI EAFE Top 100 Select Index Fund.

So any existing registered STP/SIP received (in the 3 schemes) post the cut-off timings of 31 March 2022, shall not be processed or accepted. And the existing SIP or STP mandate will remain active in the system and shall be reactivated when the scheme starts to take fresh investments. If the amount is debited, the same shall be refunded.

Note that, the pause is not applicable on redemption, switch-out systematic withdrawals and transfer. 

Further, any fresh investments received in Motilal Oswal Asset Allocation Passive Fund of Fund – Conservative and Motilal Oswal Asset Allocation Passive Fund of Fund – Aggressive, will be invested in domestic markets. Once the overseas limits are opened portfolio will be rebalanced.

Also, has cautioned investors while trading in Motilal Oswal Nasdaq 100 ETF and Motilal Oswal Nasdaq Q 50 ETF as liquidity is impacted due to restrictions. Therefore, the trading price of both the ETFs could substantially deviate from its INAV.

PPFAS:

PPFAS Flexi Cap Fund, one of the popular schemes among the investor community, has also intimated to its investors that the fund house is suspending fresh applications temporarily (in Parag Parikh Flexi Cap Fund). However, the existing SIPs and STPs shall continue as per the notice. 

Understandably, this kind of news or announcement from fund houses could unnerve the investors. A better understanding of the ‘why’ behind this information could calm the jitters. Read to know more.

Why suspend the inflows of the funds?

According to various media sources, AMFI (Association of Mutual Funds in India) has asked all the Fund Houses to suspend flows into schemes that invest in foreign securities. This is to start on February 2, 2022.

The main reason for such announcements is a SEBI circular. SEBI has set an upper limit of $7 billion for the overall mutual fund industry for overseas investments. Each mutual fund can make overseas investments up to a maximum of $1 billion.

It is believed that the recent suspension by mutual fund houses is due to the breach of the overseas investment limits laid out by SEBI.

With the entire mutual fund industry close to breaching the upper limit set by the regulator, AMFI, as per multiple media reports, has requested the fund houses (having exposure to international equities) to suspend fresh investments.

Many industry experts expect the RBI and SEBI to increase the limit of foreign investments for mutual fund houses. 

Further, they don’t expect a huge impact on the respective schemes of mutual funds. But the views are divided. Investors will have to wait and watch what happens. 

Note that, while the limit has not increased, PPFAS, as per a statement, is opening up the Flexi Cap Fund where the amount will be invested in funds in India. 

Pros and Cons of Foreign Exposure by Mutual Fund Schemes

Investing in foreign securities such as the US equities can be both an advantage as well disadvantageous.

Advantages

SEBI had enhanced the limit to $1 billion in June last year. This is to cater to the growing demand for new-age investors for higher returns.

Additionally, mutual fund houses were able to offer a wide range of products focused on international investments. This gave a good diversification thereby balancing the returns.

Disadvantages

While diversification helps cushion out the domestic market fluctuations, too much exposure to international investments can be risky. Disproportionate exposure to anything can be risky. Specifically, with respect to foreign exposure, currency fluctuations are a common phenomenon.

What changes for you on Groww?

If you have invested in any of the below-mentioned funds, you will not be allowed to make any new lump sum investments or set up new SIPs. However, you will be allowed to redeem your investment from these funds.

  • On Groww, you will also not be able to edit your SIPs.
  • Switching into or out of these funds is not allowed.
  • Existing and new STPs will not be allowed as well.

Your existing SIPs may or may not be affected, depending on the mutual fund house. Mirae Asset Mutual Fund has confirmed that SIPs on their schemes mentioned above will be paused until further notice. The list of Mirae funds are mentioned below. As of now, existing SIPs from other fund houses remain unaffected. Details from other mutual fund houses are expected shortly.

List of Funds impacted: All sub-plans under these schemes would be affected by this change. Please note that this list is still being updated.

 

AMC Scheme Name
PPFAS Parag Parikh Flexi Cap Fund
DSP DSP US Flexible Equity Fund
DSP DSP World Agriculture Fund
DSP DSP Global Allocation Fund
DSP DSP World Energy Fund
DSP DSP World Gold Fund
DSP DSP World Mining Fund
Aditya Birla Aditya Birla Sun Life Commodity Equities Fund – Global Agri Plan
Aditya Birla Aditya Birla Sun Life Global Emerging Opportunities Fund
Aditya Birla Aditya Birla Sun Life Global Excellence Equity Fund of Fund
Aditya Birla Aditya Birla Sun Life International Equity Fund – Plan A
Aditya Birla Aditya Birla Sun Life International Equity Fund – Plan B
ICICI Prudential ICICI Prudential US Bluechip Equity Fund
ICICI Prudential ICICI Prudential NASDAQ 100 Index Fund
ICICI Prudential ICICI Prudential Global Stable Equity Fund (FOF)
ICICI Prudential ICICI Prudential Global Advantage Fund (FOF)
Nippon Nippon India US Equity Opportunities Fund
Nippon Nippon India Japan Equity Fund
Nippon Nippon India Taiwan Equity Fund
Nippon Nippon India ETF Hangseng BeES
Nippon Nippon India Multi Asset Fund
Kotak Kotak Global Innovation fund of fund
Kotak Kotak Global Emerging Market Fund
Kotak Kotak International REIT FOF
Kotak Kotak World Gold Fund
Motilal Oswal Motilal Oswal MSCI EAFE Top 100 Select Index Fund
Motilal Oswal Motilal Oswal S & P 500 Index Fund
Motilal Oswal Motilal Oswal Nasdaq 100 Fund of Fund
Franklin Templeton Franklin India Asian equity fund
Franklin Templeton Franklin India feeder-franklin U.S. Opportunities fund
Franklin Templeton Franklin India feeder- Templeton European Opportunities fund
Axis Axis Greater China Equity FOF
Axis Axis Global Innovation FOF
Axis Axis Global Equity FOF
SBI SBI US Equity FOF
Mirae Mirae Asset NYSE FANG+ ETF Fund of Fund
Mirae Mirae Asset NYSE FANG+ ETF Fund of Fund
Mirae Mirae Asset S & P 500 Top 50 ETF
Mirae Mirae Asset S & P 500 Top 50 ETF Fund of Fund
Mirae Mirae Asset Hang Seng TECH ETF
Mirae Mirae Asset Hang Seng TECH ETF Fund of Fund
HDFC Hdfc Developed World Indexes Fund of Fund
Edelweiss Edelweiss ASEAN Equity Off-shore Fund
Edelweiss Edelweiss Europe Dynamic Equity Off-shore Fund
Edelweiss Edelweiss Emerging Markets Opportunities Equity Off-shore Fund
Edelweiss Edelweiss Greater China Equity Off-shore Fund
Edelweiss Edelweiss US Value Equity Off shore fund
Edelweiss Edelweiss US Technology Equity Fund of Fund
Edelweiss Edelweiss MSCI India Domestic & World Healthcare 45 Index Fund
Invesco India Invesco Global Consumer Trends FoF
Invesco India Invesco Global Equity Income FoF
Invesco India Invesco Pan European Equity FoF
BNP Paribas BNP Paribas Aqua FoF
Mahindra Manulife Mahindra Manulife Asia Pacific REITs FoF
PGIM PGIM Global Select Real Estate Securities FoF
IDFC IDFC US EQUITY FUND OF FUND

Funds for whom existing SIPs will be impacted:

Mirae Mirae Asset NYSE FANG+ ETF Fund of Fund
Mirae Mirae Asset NYSE FANG+ ETF Fund of Fund
Mirae Mirae Asset S & P 500 Top 50 ETF
Mirae Mirae Asset S & P 500 Top 50 ETF Fund of Fund
Mirae Mirae Asset Hang Seng TECH ETF
Mirae Mirae Asset Hang Seng TECH ETF Fund of Fund

 

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