US stock market is in the grip of bears having fallen 20 per cent from its recent highs. To a long-term investor looking to diversify geographically across global economies, this could be an opportunity to hold foreign stocks in the domestic portfolio.
However, for the Indian investors, the road to Wall Street has run into marshy land. Mutual fund houses have been provided with an upper cap to buy dollars and invest abroad on behalf of the unitholders. The total limit as well as per fund house limit is almost breached and the fund houses had been asked to go slow. Unless the limits are enhanced, buy-low and sell-high opportunities may get lost for investors to diversify abroad.
Raunak Onkar, Fund Manager, PPFAS Mutual Fund explains the current situation – “SEBI had previously allowed a maximum remittance limit of $1Bn per AMC to invest in overseas securities. However, it’s important to note that this limit had to be under the overall $7Bn limit set by The RBI for the entire AMC Industry. Around Feb 2022, AMC’s were asked to restrict investments in overseas securities as the overall AMC industry was about to breach the $7Bn limit set by the RBI.”
This made international mutual fund schemes stop taking fresh investments into the fund. However, the directive did not impact the existing unitholders. Several international mutual fund schemes are available that provides an access to go global and invest abroad. While some of these mutual fund schemes track Asia-pacific countries, indices, or Latin American indexes, most of the schemes track the US market. Some schemes invest partly in the US market only while maintaining positions in domestic stocks as well. The Parag Parikh Flexi Cap Fund (PPFCF) is one such scheme that holds close to 22% of the assets abroad. There are specific MF schemes benchmarked to Nasdaq, and S&P 500 which, in turn, are representative of the top global stocks.
Presently, relaxation has been provided to the fund houses even though the upper limit of $7 billion still remains. “The recent relaxation to invest in overseas securities only applies to those schemes that had redeemed their overseas positions when the restriction was announced. To the extent of their redemption, the schemes were allowed to purchase additional overseas securities. For those schemes which didn’t redeem their overseas positions, the restriction applies as before. The overall $7bn limit set by the RBI still remains in force,” informs Onkar.