Simply Save | What does restriction of flows in international schemes mean for mutual fund investors?

Mutual fund (MF) schemes allowing investors to diversify their investments to global markets have been forced to suspend flows, following directions from market regulator Securities and Exchange Board of India (SEBI) and industry body Association of Mutual Funds in India (AMFI).

While some schemes are only stopping fresh flows at present, some schemes have stopped both fresh flows, as well as flows from already existing systematic investment plans (SIP). For example, Mirae MF has stopped flows from existing SIPs, as well as fresh flows, to its international schemes.

Parag Parikh Flexicap Fund is dealing with the issue differently. As a diversified equity fund that invests about 65 percent to domestic stock markets and about 28 percent in international stocks (balance held in cash), it is funneling all the flows coming through existing SIPs into domestic stocks. At the same time, fresh flows have been suspended.

“We cannot remit further funds abroad starting February 2, till the time the limits are increased,” said Rajeev Thakkar, chief investment officer and director of PPFAs MF, in a recent note. 

Among other fund houses, Motilal Oswal MF has also stopped accepting fresh flows into their international schemes.

DSP Global Innovation Fund of Fund, which was recently launched by DSP MF, has tweaked its investment strategy. Instead of investing in units of mutual fund schemes abroad, it will be investing in overseas-listed exchange traded funds (ETFs). The regulatory limit of $1 billion for investing in overseas-listed ETFs still remains open.

This is not the first time these limits have got exhausted. The growing interest among mutual funds investors to invest in international markets has in the earlier instances led to AMC-level limits getting breached. However, this time the overall industry limit of $7 billion for investing in overseas stocks and mutual funds is close to getting exhausted.

While the situation is expected to be resolved soon with SEBI expected to consult with RBI and increase the limits, in today’s episode of Simply Save Podcast, Moneycontrol’s Jash Kriplani talks with Vishal Dhawan, founder and chief financial planner at Plan Ahead Wealth Advisors, which manages advisory assets for 300 families, to understand the ramifications if this situation continues and what regulators should do to avoid such situations from cropping up in the future.