InvestorQ : How much have Indian mutual funds been allowed to invest abroad?
Aashna Tripathi made post

How much have Indian mutual funds been allowed to invest abroad?

Aditi Sharma answered.
8 months ago

Indian mutual fund AMCs are currently allowed to invest up to a limit of $7 billion in equities abroad. However, this level was breached in February 2022 and post that the fresh investing by mutual funds in foreign stocks was banned. Now, SEBI has given a small concession in the light of the sharp correction in global markets, especially the US indices. SEBI has permitted AMCs to invest abroad with a head room that is to the extent of their international AUM as of 01st February 2022. The shortfall from redemptions or fall in price can be covered.

This is relevant for an important reason. The redemption pressure may not have been high on these international funds, but global stock market correction has been rather steep. The S&P 500 is down 22% from the peak and NASDAQ is down 35% from peak levels. That means; tech gurus like Apple, Amazon, Microsoft, Google and Facebook are available at much lower prices. Just to understand, if the AMC has reached 100% of its global limit and now the markets correct by 25%, then get 33% additional room at lower levels.

Why is this important for mutual funds in India? When the funds invest overseas, SEBI is effectively permitting them to buy global stocks at cheaper valuations. That is tantamount to an indirect increase in overseas investing limit. That is because, the same $7 billion limit is now being recalibrated when valuations are substantially lower. Most AMCs have either stopped taking fresh investments in their international funds or stopped investing abroad. The fund manager gets the leeway to invest globally and diversify investment mix.

While this is a good idea for fund managers to average out some of the good stocks which have fallen sharply, there is an open question still. It is not clear if the limit of $7 billion will be enhanced because otherwise fund managers will be back to point zero with a rally. However, with rupee closer to 80/$, that looks quite a remote possibility.