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

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.

Funds for whom existing SIPs will be impacted: