Mutual Funds To Stop Accepting Fresh Money In Overseas ETFs From April 1

Mutual funds will stop fresh subscriptions to overseas exchange-traded funds on April 1.

The fund of funds, or FoFs, investing in overseas ETFs will stop accepting fresh money as 95% of the $1 billion limit, which was set by the Reserve Bank of India, has been hit, according to two people with knowledge of the matter, who spoke on condition of anonymity.

The Association of Mutual Funds of India sent a communication on the same to asset management companies on Wednesday.

To be sure, the limit is at the purchase and inflows level and not at the assets under management level, said one of the persons quoted above.

This comes after the overall industry limit of $7 billion was hit in February 2022, following which mutual funds were asked to stop accepting fresh flows. The limit for overseas FoF ETFs is $1 billion.

The industry has been requesting the central bank to increase the overseas limit from time to time since 2022, when mutual fund companies were directed by the Securities and Exchange Board of India to stop investing fresh money overseas on the back of the $7 billion industry limit getting exhausted.

However, after the correction in overseas markets last June, the market regulator allowed the funds to invest in foreign stocks again, but within the aggregate mandated limit.

The funds of funds investing overseas witnessed net outflows of Rs 658 crore in the third quarter of fiscal 2023, Rs 1,173 crore in the second quarter, and Rs 875 crore in the first quarter, according to data by AMFI.

The category recorded an outflow of Rs 234 crore and Rs 239 crore for January and February this year, respectively.