NRIs: Trouble investing in overseas mutual funds in India? Funds seek to lift foreign investment cap
Breach of $7 billion cap triggered a halt of overseas investments for Indian mutual funds
After an explosion of retail investing that has seen India's mom-and-pop traders rushing to buy global as well as local stocks, mutual-fund managers in the nation are asking regulators to raise a limit on foreign investments.
The Association of Mutual Funds (AMFI) in India is seeking a significant boost to the $7 billion cap after it was breached for the first time since it was introduced nearly 14 years ago, triggering a temporary halt of overseas investments.
The industry body has also asked the mutual funds to stop accepting fresh systematic investment mandates from the investors. This suspension was applicable from February 2, 2022.
The capital market regulator, Securities & Exchange Board of India (SEBI) had set up a limit of $1 billion per fund house and $7 billion for the mutual fund industry.
"We are expecting the limit to be raised to $15 billion," said A. Balasubramanian, chairman of AMFI, which represents 45 asset management companies in the country. The Reserve Bank of India and the federal government are considering the request, Balasubramanian said. Spokespeople at Reserve Bank of India and the finance ministry didn't immediately respond to queries from Bloomberg News.
"People have recognised that diversification of assets beyond borders is needed," said Balasubramanian, who is also chief executive at Aditya Birla Sun Life Asset Management Co., which manages $42 billion of assets.
There are reportedly around 65 international mutual funds in the Indian market at the moment and all of these have to put their inflows on hold after the industry breached the $7 billion mark stipulated by SEBI.
Apart from these many sectoral, thematic and diversified equity schemes invest in international stocks. There are large numbers of ETFs also which have international stocks in their portfolio.
Balasubramanian said funds have been asked by the capital markets regulator and AMFI not to invest overseas for now following the limit breach. He said the country's regulators and the mutual fund industry should agree going forward on a schedule or formula for periodic revisions of the cap.
Assets managed by India's mutual fund industry have swelled to about 37 trillion rupees ($494 billion) from just 5 trillion when the cap was set in 2008, while the country's foreign-exchange reserves have more than doubled to $634 billion, notes Rajeev Thakkar, chief investment officer at Mumbai-based Parag Parikh Financial Advisory Services Ltd.
"Conditions are very conducive for the RBI to increase the limits," Thakkar said. About one-third of his $2.7 billion equity fund is in foreign investments including Alphabet Inc., Microsoft Corp., Amazon.com Inc. and Meta Platforms Inc.