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SEBI asks mutual funds to stop accepting inflows in ETFs investing overseas

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The Securities and Exchange Board of India (SEBI) has asked the Association of Mutual Funds of India (AMFI) to stop accepting inflows into funds that invest in overseas ETFs. This move comes a little over two years after the MF industry exhausted its $7 billion limit to invest in overseas stocks; a move that had such overseas mutual funds stop accepting money .

The overlimit available to MFs to invest in overseas securities is $7billion. Since this limit was reached in January 2022, SEBI had asked fund houses to stop investing overseas.

The limit to invest in overseas ETFs is $1 billion and is about to be breached. Moneycontrol has reviewed a copy of the letter that the SEBI sent to AMFI, the industry body, on March 20. To be sure, there are two types of mutual fund schemes that invest in overseas markets. One type of MF schemes directly buys shares abroad. The other type of fund- typically a Fund of Fund buys units of ETFs abroad.

So far, fund houses accepting money in these Fund of Funds or ETFs that invest money in overseas ETFs will have to put a stop to it.

There are 77 mutual fund schemes in India that invest overseas. The earlier cap imposed on other overseas funds of $7 billion still continues.

SEBI had, however, in 2023 given a concession that fund houses could invest in foreign stocks again if their assets under management had fallen due to correction in overseas market, which would have led their assets under management to fall.