Motilal Oswal Mutual Fund recently announced temporarily stopping of lump sum and switch-in investments into its Motilal Oswal S&P 500 Index, Motilal Oswal MSCI EAFE Top 100 Select Index and Motilal Oswal Nasdaq 100 Fund of Funds.
“Investors are hereby informed that, on account of limitation of fund house-wise overseas investment exposure in terms of SEBI... Motilal Oswal Mutual Fund has decided to temporarily suspend creation of ETF units directly with the Mutual Fund, except otherwise applied by authorised participants, under the Schemes... with effect from January 17,” it said in a notice.
Besides, the AMC has also suspended investments in Motilal Oswal Nasdaq 100 ETF and Motilal Oswal Q 50 ETF from January 18.
Investment ceiling
Asset management companies were allowed to channel investor money into overseas instruments in the 2007-08 Budget. It was then decided that the aggregate ceiling for overseas investments would be $5 billion. Within the overall limit, mutual funds were allowed to a maximum of $300 million per mutual fund. The overall ceiling for investment in overseas ETFs was fixed as $1 billion, subject to a maximum of $50 million per mutual fund.
In November 2020, these limits were increased a bit. MFs were allowed a maximum of $600 million per scheme, and the overall industry limit was raised to $7 billion. But, the ceiling on the overseas exchange-traded fund was restricted to $200 million per MF, within the overall industry limit of $1 billion. Again in June 2021, SEBI restored the limit to $300 million per MF in overseas Exchange Traded Fund (ETF) while retaining the overall industry limit of $1 billion.
Though the current limit of $7 billion is yet to be fully utilised, some schemes are fast approaching the cap meant for the individual fund or $30 million.
Increasing the limit
The time has come to increase the limit, given the investor interest in overseas markets. To capitalise on this, domestic fund houses are also keen to launch mutual funds invested in overseas assets.
However, it would be better to give the freedom to fund managers themselves on the size of individual funds. They are better positioned to judge and control the inflows within the overall industry limit, which can be doubled to $14 billion.
It may be recalled that Edelweiss Fund House said that it would limit investments in Recently Listed IPO to a maximum of ₹1 lakh per day per investor from February 1. A few years back, DSP Mutual Fund, too, restricted its inflow into Small Cap fund, citing valuation concerns. Overseas funds may similarly regulate flows based on valuations and market conditions assessment.