Capital markets regulator SEBI has asked asset management companies (AMCs) not to accept investments through overseas exchange traded funds (ETFs) in their mutual fund schemes.
From next month i.e. from 1st April those who invest in foreign exchange traded funds (ETFs) will no longer be able to invest in them. Market regulator Securities and Exchange Board of India (SEBI) has banned mutual funds from making new investments. The maximum investment limit in foreign ETFs is fixed at $1 billion (approx. 8,332 crores). That is why SEBI has given this order. SEBI has also written to the Association of Mutual Funds in India (AMFI), the head of mutual fund houses in the country.
What prompted SEBI to arrive at this decision?
Capital markets regulator SEBI has asked asset management companies (AMCs) not to accept investments through overseas exchange traded funds (ETFs) in their mutual fund schemes. Because the $1 billion threshold for this investment is close to being crossed. The mutual fund industry has already reached 95 percent ($950 million) of the $1 billion threshold. SEBI has asked mutual funds to temporarily stop accepting money in foreign ETFs,” said a senior official at a mutual fund house. The market regulator has banned fresh money in such schemes from April 1.
How much can mutual funds invest in foreign ETFs?
In fact, the Reserve Bank of India (RBI) has set an aggregate limit of $7 billion for fund houses to invest in foreign equity or mutual funds. Notably, investments of up to $1 billion are allowed in foreign exchange traded funds of the mutual fund family. The mutual fund industry is also demanding the RBI to raise the foreign investment limit to $7 billion. Shaktikanta Das had also said that a decision can be taken if the rupee remains stable against the dollar. “Mutual fund industry has been making such requests to us all the time. We will make a decision at the right time. It needs to be stable against the dollar,” Shaktikanta Das also underlined.
What can be the new options?
Indian investors can also open international trading accounts through conventional Indian brokerages such as ICICI Direct, HDFC Securities, IIFL Securities, Kotak Securities and Axis Securities. International brokerages like Interactive Brokers, Charles Schwab, Ameritrade, Stockal can also be used to open foreign trading accounts and trade directly.
What do you mean Exchange Traded Fund?
There are mainly five types of ETFs, including Equity ETFs, Bonds ETFs, Commodity ETFs, International ETFs and Sectoral/Thematic ETFs.
An exchange-traded fund (ETF) is a type of pooled investment security that can be bought and sold like individual stocks. There is also a key difference between ETFs and mutual funds. Although a mutual fund is a pooled investment, it can be traded only once a day after the market closes. ETFs, on the other hand, are designed to track anything from individual commodity prices to securities.
ETFs can also be opened to track specific investment strategies. Exchange Traded Funds (ETFs) are a class of securities that trade on the market just like stocks. ETF share prices fluctuate throughout the day, as ETFs continue to be bought and sold; It is different from mutual funds.
ETFs can include all types of investments, including stocks, commodities or bonds; Mostly international companies invest in it, shares bought through ETFs are cheaper than buying shares individually and broker commissions are also negligible. This makes them an attractive option for individual investors. ETFs are taxed less than other mutual fund schemes.
