SEBI instructs DSP Global Innovation FoF to restrict overseas investments to ETFs

One more mutual fund house is going slow on overseas investments, citing regulatory reasons. SEBI has asked DSP Mutual Fund to restrict its investments to ETFs while deploying the money raised in the new scheme offer of DSP Global Innovation Fund of Funds (DGIF).

The regulator has informed the fund house that DGIF should initially invest only in overseas ETFs until the limit of $ 7 billion is increased in consultation with the Reserve Bank of India (RBI).

Regulator norms

SEBI has earlier specified an industry level limit of $7 billion for mutual funds that invest in overseas securities and mutual funds, and a separate limit of $ 1 billion for investment in overseas exchange traded funds (ETFs).

As per the original asset allocation plan, DGIF was supposed to invest 70 percent of the money in units of four overseas mutual funds and 30 percent in two overseas ETFs. However, as of now, the original plan has been kept on hold.

“DGIF will begin by investing in two passive funds – iShares PHLX Semiconductor ETF & iShares NASDAQ 100 UCITS ETF – as advised by SEBI. Once the overseas investment limit for the Indian MF industry (US $7 billion) is enhanced, this fund also propose to invest in unique active strategies like BlueBox Global Technology Fund, Nikko AM ARK Disruptive Innovation Fund, Morgan Stanley US Insight Fund & BGF World Technology Fund and other overseas fund with Innovation theme,” said the fund house in a press release issued.

The new fund offer of DGIF opened on January 24 and will close on February 7, 2022.

Mutual funds investing in overseas stocks and units of other mutual funds are getting healthy inflows. According to Value Research, Motilal Oswal Nasdaq 100 ETF delivered 25.1 percent and 24 percent returns over last five and ten-year periods, despite a loss of 12.15 percent reported since January 1, 2022. Now, 64 mutual funds focusing on international investments manage assets worth Rs 45,658 crore.

DSP Mutual Fund is not the only fund house to limit its overseas investments. Motilal Oswal Mutual Fund has also halted lump-sum investments in three international schemes post cut off time of January 14, 2022. These three schemes include Motilal Oswal Nasdaq 100 ETF and Motilal Oswal S&P 500 Index Fund which manage assets worth Rs 6,273 crore and Rs 2,737 crore, respectively. Also lumpsum investments in Motilal Oswal MSCI EAFE Top100 Select Index Fund are halted which has Rs 39 crore in assets under management. The fund house however allowed staggered investments through systematic investment plan and systematic transfer plan. There was no restriction on redemptions as well.

Mutual fund investors look at investing in stocks listed overseas to achieve diversification across currencies, geographies and businesses not available in India.