Edelweiss MF, Kotak MF put restrictions on international funds

A flexi cap fund must have at least 65 percent of its total assets invested in equities.

Asset management companies Edelweiss Mutual Fund and Kotak Mahindra Mutual Fund have decided to temporarily suspend subscriptions in their international mutual funds.

This comes days after Reserve Bank of India Governor Shaktikanta Das said that there was no proposal to increase the overseas investment limits for domestic mutual funds at the moment.

After underperforming over the past year, international funds recently started to put up a good show over the past three months.

On a one-year basis, international funds have delivered an average return of -3 percent, however, on a three-month basis, it is the best-performing mutual fund category with an average return of 17 percent, as per data available with Value Research.

In a notice dated February 9, Kotak Mahindra Asset Management Company said that it has decided to suspend the subscriptions in Kotak Nasdaq 100 Fund of Fund, an open-ended fund of fund investing in units of overseas ETFs and/or index fund based on Nasdaq 100 Index.

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As per the fund house, this decision has been taken in order to avoid the breach of the limit with effect from February 9.

The fresh restrictions mean that the fund house has suspended lumpsum investments and switch-in in Kotak Nasdaq Fund of Fund.

While fresh systematic registration, including systematic transfer plan (STP)/dividend Transfer Plan (DTP), into the scheme, will not be accepted effective from February 10, existing SIP/STP/DTP installments will be also paused from March 1, till further notice.

Notably, there will be no impact on switch out, redemptions, registration of fresh and existing systematic withdrawal, and transfer plans from the scheme.

Nilesh Shah, Managing Director, Kotak Mahindra Asset Management Company said, “We have hit the SEBI prescribed limit of overseas investment in ETFs. We have applied to SEBI for an increase in the limit as the industry still has a surplus limit available. We will open the fund if we get an additional limit. Our funds will remain shut for subscriptions only till such time. Note that this is only for subscriptions. There is no change in redemptions. The fund continues to provide daily redemptions/ liquidity to all investors.”

Kotak Nasdaq 100 Fund of Fund is the fund house’s biggest overseas fund with assets under management of Rs 2,053 crore as of December 31, 2022. The fund house has a total of four overseas funds.

Meanwhile, another fund house, Edelweiss Asset Management Limited is suspending lump sum purchases in seven of its schemes.

The names of the schemes are ASEAN Equity Off-shore Fund, Greater China Equity Off-shore Fund, US Technology Equity Fund of Fund, Emerging Markets Opportunities Equity Offshore Fund, Europe Dynamic Equity Offshore Fund, US Value Equity Off-shore Fund and MSCI India Domestic & World Healthcare 45 Index Fund.

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As per the fund house, fresh as well as existing installments of systematic investment/transfer plans/dividend transfer plans will not be affected as of now and continue as is.

The fund houses believe that suspension is temporary in nature and will be reviewed depending upon the buffer created due to the redemptions into these schemes or till further enhancement of limit by SEBI/RBI in this regard.

Speaking to reporters at the post-policy review press conference on February 8, Das acknowledged that there have been requests from mutual funds and other market players for relaxations of the limits.

"We have examined that. But we have not taken a positive decision on it yet. There is no proposal to increase the limits at the moment," Das said.

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After nearly a year of regulatory limitations, most Indian equity funds investing in overseas markets started accepting funds from domestic investors in January only.

In January 2022, the Securities and Exchange Board of India (SEBI) asked mutual funds investing in overseas securities to stop further such investments to avoid breaching industrywide limits imposed by the Reserve Bank of India.

There’s an overall industry-level limit of $7 billion for mutual funds to invest in overseas securities and funds and a separate limit of $1 billion for investing in overseas exchange-traded funds (ETFs).