While many fund houses have stopped registering fresh SIPs in international funds, most of them have not discontinued existing SIP inflows in their funds having exposure to international stocks.
Recently, SEBI has asked fund houses not to make incremental investments in overseas funds or securities as the MF industry has breached the overall limit of $7 billion.
However, a few fund houses have been receiving money through existing SIP route from investors, which is meant to be deployed in international stocks.
Now, the question is: What would happen to incremental inflows if the overall limit of the industry has been breached and fund houses cannot buy international stocks.
While flexicap funds having exposure to international funds can continue to invest incremental money in domestic markets as they can increase their exposure to Indian stocks to 100% at any point of time, pure international funds and FoFs investing overseas are not allowed to invest in domestic stocks. However, such funds can invest in debt and money market instruments.
A CEO of the foreign fund house told Cafemutual that fund houses can continue to receive inflows through SIPs as long as they deploy this corpus in cash markets. He said that many fund houses have been deploying incremental inflows in money market and overnight securities to comply with the regulatory requirement.
He, however, feels that such fund houses should ethically discontinue SIP inflows in international funds as the money they are receiving is meant for equity allocation. His fund house has discontinued existing SIPs as well in international funds.
A Mumbai MFD said that investors should discontinue their SIPs in such schemes since they end up buying liquid securities. “Investors who continue their SIPs in international schemes would be paying TER of equity funds to buy money market securities, which is unfair to them.”
