The Securities and Exchange Board of India (Sebi) is set to implement measures to address the breaching of the $1 billion investment limit in overseas exchange-traded funds (ETFs). According to sources familiar with the matter, Sebi has instructed asset management companies (AMCs) to halt fresh subscriptions in overseas ETFs, effective from April 1, 2024.

 

The Association of Mutual Funds of India (AMFI), in a communication to mutual fund houses, has conveyed that investments in non-ETF overseas securities may continue until further notice. Sebi's directives to AMFI, subsequently relayed to fund houses, highlight the regulatory stance on managing overseas investments.

 

Mutual funds have also been directed to value the utilization of overseas investment limits based on the cost of acquisition, rather than current market prices. This move aims to maintain transparency and align valuation practices with regulatory guidelines.

 

The Reserve Bank of India (RBI) oversees fund inflows and outflows, imposing an industry-wide limit of $7 billion for mutual funds investing outside India. Following the breach of this limit in February 2022, mutual funds were instructed to cease accepting fresh flows.

 

However, a significant correction in global markets during 2023 resulted in a devaluation of international stocks. This downturn reduced the cumulative investments in international mutual fund schemes, creating an opportunity for fresh investments in this category.

 

Taking note of this market correction, the RBI subsequently allowed fresh inflows into international schemes, albeit subject to certain restrictions. This relaxation prompted some fund houses to resume accepting fresh investments within specified limits.

 

For overseas ETFs specifically, the investment ceiling stands at $1 billion, reinforcing Sebi's proactive approach in managing investment thresholds to safeguard market stability and investor interests.

 

The regulatory actions underscore the dynamic nature of global investment landscapes and the importance of prudent oversight to maintain a balanced and sustainable investment environment. Investors and market participants are advised to stay abreast of regulatory developments and adhere to prescribed guidelines for responsible investment practices.