Safeguard measures to comply with RBI’s overseas investment limits for Mutual funds and ETFs
Quick highlights –
- Regulators in India have set a limit of US$7 billion for investments in overseas funds and securities for the mutual fund & ETF industry
- The industry-wide limit on the verge of breach & fund houses have been directed to stop accepting fresh inflows in schemes that invest abroad. Fresh ETF unit creation has also been restricted.
- Considering that some of the smallcases consist of ETFs that take exposure to overseas markets, we are announcing a set of safeguard measures to protect investors.
- Existing investors are not impacted in any way. Also, investors who want to sell their ETF units can do so without any issues.
Over the past couple of years, there has been a growing interest, among Indian investors, when it comes to allocating money in overseas equity instruments – primarily through ETFs & Mutual Funds. While this is encouraging, it comes along with its own set of restrictions.
Investors in India have been relying on Indian Asset Management Companies (AMCs) to park their money overseas by investing in products made by these AMCs. For example, Motilal Oswal AMC has an ETF called Nasdaq100 which provides exposure to the top 100 non-financial companies listed on the Nasdaq Stock Exchange. Similarly, AMCs like Mirae Asset, Nippon India etc also have ETFs that provide exposure to different overseas markets.
RBI’s guidelines on overseas investments
There is a limit to which an individual AMC and the overall industry can have overseas exposure. This limit is set by the regulators, which directs that:
- The entire industry cannot invest more than $7 billion in overseas markets
- An individual AMC cannot invest more than $1 billion
In case an AMC reaches near the $1 billion mark or the overall industry exposure reaches the $7 billion mark, several restrictions are imposed to stop taking fresh inflows of funds to avoid breaching these limits.
The industry is nearing the regulator’s limit
The Industry’s exposure to overseas markets is nearing the $7 billion mark set by the regulators. Thus, several AMCs have stopped fresh inflows of funds in their Mutual Funds and have also restricted the fresh ETF unit creation. This is expected to result in significantly reducing the liquidity of their ETFs on the exchange. (ETFs impacted by this change are listed at the end)
Impact on smallcases & safeguard measures
To safeguard our users, we are taking the following steps –
- All the smallcases created by our managers, containing any of the ETFs that take exposure to overseas markets, will not be available for fresh purchase from 24th Mar’22
- For all orders, we will start showing nudges on the order window to help our users take an informed decision – as trading prices of impacted ETFs may substantially deviate from their actual fundamental values
Existing investors need not worry, as this has no impact on them. Although, If they have an active SIP running on any smallcase that consists of these ETFs, they should consider pausing it for the time being.
Please note that it is expected that sell trades on these ETFs should get executed smoothly.
So investors who want to sell their units can do so without any issues.
It is also expected that the overseas investment limits for the individual AMCs and the industry will be soon revised. We will keep you posted on the latest developments.
List of ETFs facilitating overseas investments
- Nippon India ETF Hang Seng BeES
- Motilal Oswal NASDAQ 100 ETF
- Motilal Oswal NASDAQ Q50 ETF
- Mirae Asset NYSE FANG+ ETF
- Mirae Asset S&P 500 Top 50 ETF
- Mirae Asset Hang Seng TECH ETF