MFIs open investments in overseas projects

Mutual funds have launched aggressive selling programs that invest in overseas markets, with the recent sharp drop in global equity markets providing much-needed leeway to play within the RBI-mandated $7 billion limit.

In addition to the existing programs, Mirae Asset Mutual Fund has launched two new offerings on ETF Global Electric and Autonomous Vehicles funds of funds and ETF FoF Global X Artificial Intelligence and Technology.

Nippon India, one of the world’s largest investors, has also restarted subscription to its existing programs.

Investors’ appetite for investing abroad has been boosted by the urge to spread their costs, after the US Fed’s steady hike in interest rates.

Kavitha Krishnan, Senior Analyst, Morningstar India, said the recent correction in the markets has provided mutual funds with enough opportunities to open up investments in these programs.

RBI has yet to consider stakeholders’ request to increase the upper limit for overseas investment, she said.

Investors have the opportunity to gain exposure to FAANG stocks, which are global companies with the largest market capitalization. Increased investor awareness has led to increased demand for investing in foreign securities, she said.

The collapse of the American market

In the United States, major indexes have been battered since January, with the S&P 500 index losing 21%, the tech-heavy Nasdaq falling nearly 30% and the Dow Jones falling nearly 15% so far this year.

Following this, FoF assets investing overseas fell by 4% to Rs 21,176 crore from Rs 22,128 crore in January despite a sharp depreciation of the rupee, according to data from the Association of Mutual Funds. in India.

Concerned by the relentless fall of the rupee against the dollar, AMFI capped the overseas investment limit of individual mutual funds from February. RBI has set $7 billion as the investment limit for foreign equity mutual funds and an additional $1 billion through ETFs.

After global markets collapsed, financial markets regulator SEBI allowed mutual funds to invest in foreign stocks within prescribed limits in June.

Arun Kumar, head of research at FundsIndia, said the restriction has definitely led to fewer global choices for investors, although the cap for FoFs investing in global ETFs is still intact.

Global diversification of equity portfolios should be viewed more from a risk diversification perspective and not necessarily as a return enhancer. Rather than being tactical, it’s better to build long-term exposures in global equities for the core equity portion, he added.

Published on

August 27, 2022

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