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What should mutual fund investors do as SEBI halts investment in overseas ETFs?

Starting today, fund houses have been asked to halt investing in international ETFs

SEBI halts investment in overseas ETFs: What to do?

Since SEBI halted fund houses' investment in overseas ETFs from April 1 onwards, how can we continue with our international investments? - Anonymous

From today (April 1, 2024), mutual funds investing in overseas ETFs (exchange-traded funds) have been barred from accepting fresh inflows, as the industry-wide limit of $1 billion has been exhausted.

This is separate from the $7 billion limit that the mutual fund industry is otherwise entitled to, for investing in international securities other than ETFs. A bit of headroom is still available there. Given the same, a few schemes investing in international securities (besides ETFs) are still accepting money.

Returning to the question, now that most mutual funds can't invest abroad, there are three options in front of you:

Pause your international investments until mutual funds start accepting fresh inflows again.
Look for a domestic fund that is still investing overseas. That said, finding one may be tough because they, too, may exhaust the limit in a few days.
Invest in foreign ETFs directly through brokerage platforms like Interactive Brokers or India INX.

While the last option is less efficient and slightly complicated than investing through mutual funds, it offers more favourable tax treatment after the indexation fallout.

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