Funds move Sebi to lift cap on foreign investments
Motilal Oswal Asset Management Co., which has an exchange-traded fund tracking the Nasdaq 100 since 2011, followed it up with a similar product tracking the S&P 500 in April 2020.Updated: Oct 26, 2020, 23:33 IST
Mutual funds (MFs) have approached the markets regulator to raise the current $300 million overseas investment limit of an asset management company as Indian investors develop a heightened appetite for risk-taking outside the country.
Stellar returns in the past decade have led to strong inflows into MF schemes investing abroad. In the fund of funds (FoF) category, overseas assets under management touched ₹6,496 crore at the end of September, according to data from the Association of Mutual Funds in India. This figure does not include funds that primarily buy local stocks, but also invest part of their corpus abroad. The rule limiting MF investments in overseas assets came into effect in 2007-08. The industry wide limit was then set at $7 billion.
“Thirteen years later, things are obviously very different. We’ve reached about half the limit with $150 million. Nonetheless, we have sent a representation to Sebi, along with other MFs, to increase the limits wherever possible,” Neil Parikh, CEO of PPFAS Mutual Fund, said at the annual unitholder’s meeting on October 24.
Over the past seven years, the Nasdaq 100 has delivered a compounded annual growth rate (CAGR) of around 22% in rupee terms, compared to around 11% for the Nifty. In 2020, while the Nifty delivered 4%, Nasdaq fetched 54%, driving interest in MFs investing in US stocks.
Motilal Oswal Asset Management Co., which has an exchange-traded fund tracking the Nasdaq 100 since 2011, followed it up with a similar product tracking the S&P 500 in April 2020. Axis Mutual Fund launched Axis Global Equity Alpha FoF on September 24. The scheme had ₹887 crore in AUM on September 30.
“If some fund is not using the limit, let us use the limit,” said Parikh, referring to the fact that not all of India’s AMCs have schemes investing abroad. “So far, there’s been no definitive answer. However, they’ve been warm towards the idea, and we are hopeful that the limit will be raised at a certain time.”