DSP Mutual Fund temporarily restricts subscription to global schemes

DSP Mutual Fund has temporarily restricted subscriptions to units of seven schemes that hold global assets in their portfolio. The schemes that are impacted include DSP Global Innovation Fund of Fund, DSP Global Allocation Fund of Fund, DSP Global Clean Energy Fund of Fund, DSP World Agriculture Fund, DSP US Flexible Equity Fund of Fund, DSP World Gold Fund of Fund and DSP World Mining Fund

International mutual funds that invest in foreign assets such as equity shares, bonds, or gold on behalf of Indian investors have to adhere to overseas investment limits as set by the market regulator, SEBI.

SEBI had specified an overall industry limit for overseas investment as US $7 billion and overseas Exchange Traded Fund (ETF(s) limit as US $1 billion. These rules came into force on February 2, 2022, to avoid breach of industry-wide overseas investment limits as permitted by RBI.

Further, in June 2022, AMFI advised MF houses that Mutual Fund schemes may resume subscriptions and make investments in overseas funds/securities upto the headroom available without breaching the overseas investment limits as of end of February 01, 2022 at Mutual Fund level.

Later, SEBI vide email dated March 19, 2024 and AMFI vide email dated March 20, 2024, directed AMCs to temporarily restrict the subscription in the schemes that intend to invest in overseas Exchange Traded Funds (ETFs) w.e.f. April 01, 2024 to avoid breach of industry-wide limits for investment in overseas ETFs.

Now, as a precautionary measure, to avoid the breach of DSP MF level limit as on February 01, 2022, the temporary restrictions are in place by the DSP Mutual Fund.

Any lump sum subscription, switch-in, new SIP/STP/ IDCW Transfer Plan registration requests received in the DSP Mutual Fund’s international schemes post the cut-off timing on October 1, 2024, are not being accepted.

However, SIP/STP installments for existing SIP/STP registration in Designated Schemes as on October 1, 2024, will continue till further notice.

In the case of overseas fund of funds, the Budget 2024 has changed the applicable taxes and holding periods for STCG and LTCG. STCG is now 24 months under the amended regulations, with taxes levied at slab rates. The tax rate on LTCG is 12.5% if the holding period exceeds 24 months.

International fund of funds are projected to gain popularity among investors because they bring simplicity and uniformity to this investment category, which was formerly classified as debt funds and taxed at slab rates.

In the case of foreign ETFs, the LTCG holding term and tax rate are equivalent to Indian equities, at 12.5% above 12 months, while STCG is taxed at slab rates.