Why some funds are still taking money, and others have stopped

On February 26, four funds of Nippon India Mutual Fund – Nippon India US Equity Opportunities, Nippon India Japan Equity, Nippon India Taiwan Equity, and Nippon India ETF Hang Seng BeES – stopped taking investments. Nippon India MF clarified that existing registered Systematic Investment Plans (SIPs) and Systematic Transfer Plans (STPs) will continue.

The schemes stopped taking investments as there’s an overall industry-level limit imposed by the Reserve Bank of India (RBI) of $7 billion for mutual funds to invest in overseas securities and funds and a limit of $1 billion on individual fund houses. On top of this, there’s a separate limit of $1 billion for investing in overseas exchange-traded funds (ETFs).

Overseas mutual funds stop and start accepting money, depending on how close they are to their upper limits when it comes to investing your money overseas. The money flow into such schemes has been a mixed bag so far.

Open for business

There are around 70 schemes focused on overseas investing. Out of these, Motilal Oswal Nasdaq 100 FOF (Fund of Fund) is the biggest scheme with investments of Rs 4,533 crore. The fund is allowing SIPs, while lump sum or one-time investments are stopped at this moment.

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Among the top 15 names, Mirae Asset NYSE FANG+ ETF FoF, which has assets of Rs 1,265 crore is not accepting fresh SIPs and lumpsum investments in the fund.

Notably, the FoF and ETF variants of US-oriented Mirae Asset NYSE FANG were the top-performing funds of the calendar year 2023 as they delivered around 100 percent returns during the year.

Funds such as Edelweiss Greater China Equity Off-shore and HDFC Developed World Indexes FoF are allowing both lumpsum and SIP investments as of now.

Returns matrix

In terms of performance overseas funds based on different themes and geographies have delivered varied returns to investors over the past one year.

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For example, among the top 15 schemes, US-focused technology funds such as Mirae Asset NYSE FANG+ ETF FoF and Edelweiss US Technology Equity FoF have gained up to 87 percent on a one-year basis till February 26, as per data available with ACE MF.

The US-focused diversified schemes such as ICICI Prudential US Bluechip Equity and DSP US Flexible Equity have gained 21-22 percent.

Globally diversified schemes such as HDFC Developed World Indexes FoF, Kotak Global Innovation FoF and Axis Global Equity Alpha FoF have delivered up to 24 percent returns in a one-year period.

On the other hand, China-focused funds such as Edelweiss Greater China Equity Off-shore have delivered negative returns during this period.

Blessing in disguise

At this point, most global funds are accepting fresh investments, which can change at any time depending on the headroom available to the fund houses.

“If you believe that the market is currently undervalued, a lumpsum investment could allow you to buy more units at a lower price. However, if you’re unsure of market directions, an SIP might be safer as it averages out your purchase price over time,” said Viral Bhatt, Founder, Money Mantra.

As per Bhatt, some domestic mutual funds invest in a mix of Indian and international companies. “These funds can provide some exposure to global markets while staying within regulatory limits,” said Bhatt.

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Meanwhile, restrictions on overseas investments might be a blessing in disguise for investors as stocks have run up in the last one year.

Rushabh Desai, Founder, Rupee With Rushabh Investment Services, said, “The SIP methodology would be the best approach at this point in time as the US markets have recovered quite well over the past one year. Investors should have some exposure to either the Nasdaq 100 or FAANG+ indexes, and the SIP route would be ideal as the good time for lumpsum investment was in 2022 or early 2023. Even among the global geographies, the US markets are the best placed,” said Desai.

RBI restrictions

In February 2022, the Securities and Exchange Board of India (SEBI) had asked mutual funds investing in overseas securities to stop further investments in foreign stocks to avoid a breach of industry-wide overseas limits imposed by the RBI.

Industry body, the Association of Mutual Funds in India (AMFI), then in June 2022 notified that mutual fund schemes may resume subscriptions and make investments in overseas funds or securities up to the headroom available without breaching the investment limits.

Therefore, based on the limits fund houses from time to time impose temporary restrictions and lift them as when there is available headroom without breaching overseas investment limits.