While the limits for international investing are long pending to be enhanced, SEBI has allowed mutual funds to invest overseas up to some extent
20-Jun-2022 •Shruti Agarwal
After a long wait, here comes some respite to those looking to invest internationally as SEBI has lifted the moratorium on mutual funds investing abroad. But before we delve into the details, here is a quick recap on the chain of events that have left international mutual fund investors with a bated breath since the start of this year.
A sustained bull rally after the advent of COVID-19 in global markets, such as the US, popularised the concept of overseas investing in India. So much so that these funds were stopped from making fresh investments into the foreign markets as SEBI prescribed limits for foreign remittance were on the verge of a breach. As per the rules, each fund house can invest a maximum of US $1 billion (roughly Rs 7,800 crore today) in overseas markets. Further, there is an overall investment limit of US $7 billion for the mutual fund industry as a whole.
The above embargo was put on account of the overall industry being close to hitting the ceiling limits of US $7 billion, which has not been enhanced to date. However, SEBI has written to AMFI that mutual funds can now invest in the foreign markets up to the leeway they have as per the fund-house-wise limit. So, there are chances that many international funds will start taking fresh inflows soon. However, this is just a short breather and will vary from fund to fund depending upon the available headroom that they have.
Nonetheless, if you have been investing in international markets and have a long-term horizon, it is important that you benefit from investing at the current juncture when popular US indices such as S&P 500 and Nasdaq 100 are down by 23 per cent and 31 per cent respectively in 2022. It is important to understand that investing in equity works when you invest both through the ups and downs of the stock market. Your SIPs over the market cycles help you earn healthy returns in the long-term. Stopping SIPs in a falling market such as this can adversely impact your return potential. While investors were forced to face this vagary in the last few months because of AMCs suspending incremental inflows in order to comply with SEBI guidelines, you may now have your chance to participate in the downturn and take advantage of rupee cost averaging.