SEBI asks AMFI to stop fresh investments in overseas ETFs amid a breach of the upper limit

On March 20, 2024, the Association of Mutual Funds India (AMFI) received a directive from the Securities and Exchange Board of India (SEBI) instructing a cessation of new investments in ETFs allocating funds to overseas markets. This action comes in response to the nearing breach of the upper limit for ETFs set by the Reserve Bank of India (RBI) for overseas investments, currently standing at USD 1 billion out of a total industry-wide limit of USD 7 billion.

Effective from April 1, 2024, fund of funds (FoFs) investing in exchange-traded funds (ETFs) listed on international markets will be required to halt the acceptance of new investments. This move follows the regulatory framework aimed at maintaining adherence to RBI’s prescribed limits on foreign investments by mutual funds.

The breach of the upper limit in February 2022 previously led to a suspension of fresh inflows. However, a subsequent market correction in 2023, resulting in lowered international stock valuations, prompted the RBI to relax restrictions, allowing for renewed inflows with certain constraints. This relaxation led some fund houses to resume accepting investments, but currently, the ETF category is approaching its USD 1 billion threshold.

Notably, the Motilal Oswal Nasdaq 100 FOF stands as the largest scheme among approximately 70 overseas investing schemes, boasting investments totaling Rs 4,533 crore. Mirae Asset NYSE FANG’s FoF and ETF variants emerged as top-performing funds in 2023, delivering remarkable returns of around 100% for the year.

In a related development, Nippon India Mutual Fund experienced changes on February 26 when four of its funds, including Nippon India US Equity Opportunities and Nippon India Japan Equity, ceased accepting investments. However, existing registered Systematic Investment Plans (SIPs) and Systematic Transfer Plans (STPs) remain unaffected.

Ready to watch your savings grow? Try our SIP Calculator today and unlock the potential of disciplined investing. Perfect for planning your financial future. Start now!

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. The information is based on various secondary sources on the internet and is subject to change. Please consult with a financial expert before making investment decisions.