Motilal Oswal stops lump-sum investments in three international schemes: What investors should know

Motilal Oswal Mutual Fund has temporarily stopped accepting lump-sum and switch-in investments in three of its international schemes. These schemes are Motilal Oswal S&P500 Index, Motilal Oswal MSCI EAFE Top 100 Select Index and Motilal Oswal Nasdaq 100 Fund of Fund. Here are a few things you should know.

Why suspension?

In the past, we have seen a few mutual fund houses suspending lump-sum inflows when market valuations climb and fund managers find it difficult to find avenues for deploying inflows.  However, the suspension announced by Motilal Oswal Mutual Fund is an outcome of a rule framed by the Securities Exchange Board of India (SEBI). On June 1, 2021 SEBI enhanced foreign investment limit for each mutual fund house to $1 billion from $600 million. The overall limit for the mutual fund industry is set at $ 7 billion.

As net remittances by Motilal Oswal Mutual Fund go closer to this limit, the fund house has taken the step of suspending lump-sum and switch-in investments.

Motilal Oswal Nasdaq 100 ETF and Motilal Oswal S&P 500 Index Fund manage assets worth Rs 6,273 crore and Rs 2,737 crore, respectively. Motilal Oswal MSCI EAFE Top100 Select Index Fund has Rs 39 crore in assets under management as per data from Value Research.

Pratik Oswal, Head-Passive Funds Business, Motilal Oswal Mutual Fund says, “The suspension is temporary in nature. We, along with the mutual fund industry, are closely working with the regulator and hope that the limit on foreign investments will be increased in a couple of weeks.”

If the limits are enhanced by SEBI, then the schemes will be reopened for fresh lump-sum investments.

In November 2020, SEBI had doubled the limit to $600 million from US$300 million for each fund house. However, SEBI had not changed the overall limit for the mutual fund industry, and kept it at $7 billion.

What is the impact?

After the cut-off time on January 14, 2021, the fund house won’t be processing any lump-sum subscription requests in these three schemes.

The fund house has made it clear that existing systematic investment plans, systematic transfer plans, systematic withdrawal plans, switch out and redemptions are allowed to and from aforementioned schemes. Even investors can register new SIP and invest in these schemes. Also, you can continue to buy and sell units of Motilal Oswal Nasdaq 100 ETF on the stock exchange. No new units will be created in the ETF, till the limit is enhanced.

What should you do?

“Investors should ideally invest in these schemes through the SIP or STP route, in line with their asset allocation pattern,” says Amol Joshi, Founder of Plan Rupee Investment Services.

If you are keen on lump-sum investments, there are schemes tracking the Nasdaq 100 index, offered by other mutual fund houses such as Aditya Birla Sun Life, ICICI Prudential and Kotak. “Investors can also consider systematic investment through actively managed schemes such as ICICI Prudential US Bluechip Equity Fund and Franklin India Feeder Franklin US Opportunities Fund,” Joshi adds.