Executives in the mutual fund sector are anticipating that the Reserve Bank of India (RBI) will announce increased offshore investing limitations for international schemes at tomorrow’s monetary policy announcements (February 10), reports moneycontrol.com
NS Venkatesh, the chief executive of the Association of Mutual Funds in India (AMFI), said that the RBI will decide whether to increase the foreign investment limits for international schemes after taking into account the country’s FX reserves.
The head of a fund firm that had to halt taking flows because fresh foreign investments were prohibited said they were hoping for a resolution from the RBI’s monetary policy.
Some Speculations
According to industry insiders, the limitations might be doubled as a short-term fix.
“It’s critical to overcome this limit issue as quickly as possible since we can’t budget in the giant US tech firms, which are currently experiencing a price fall.” Several mutual funds were on the verge of emptying their assets but had not done so. As a result, the doubling of restrictions should allow the sector to continue deploying assets in international markets for the foreseeable future,” said the CEO of a second fund company, who did not want to be identified. Regulators can later consider constructing a dynamic model,” he said, “so that the limitations can be increased as and when needed.”
Creating a dynamic limit, according to a senior executive of a third fund house, maybe difficult because RBI must track several macroeconomic variables continuously, such as forex reserves, current GDP, fiscal deficit, and estimated economic growth, before deciding on an appropriate number for the MF industry.
The schemes and mutual funds that invest in overseas securities including mutual funds used to have to cease accepting new investors on February 2 because they were approaching the limit for overseas investing.
The total industry maximum for investment in overseas securities & mutual funds is $700 million, with each fund house having a $1 billion cap.
Some international programs still can accept flows that invest in exchange-traded funds that are listed on foreign exchanges (ETFs). This is because there is a separate cap of $1 billion for funds investing into overseas-listed ETFs, which is $300 million for every fund house.
Overseas investing has become increasingly popular in recent years as investors realize the value of regional diversification in their portfolios. Several new mutual fund offerings have also been created, with an emphasis on overseas stock markets.
