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When SEBI restricted fresh inflows in overseas mutual funds in January 2022 to avoid breach of foreign investment limit set by RBI, not many would have expected it to last this long. There was a widespread expectation that either the government (during Budget announcement) or the RBI will announce the hike in limits in February.
However, almost seven months have passed by and still there is no clarity on the future of international mutual funds.
As per an industry executive, the limit hike decision is pending with the RBI and it is not giving out any update despite repeated attempts by SEBI.
The falling rupee might be the reason behind RBI's hesitation to raise the limit. The Indian currency has depreciated more than 5% in 2022 to touch Rs. 80 to a dollar for the first time in July. Allowing more money to flow out of India through mutual fund investments at this point of time can weaken the rupee further.
Another industry executive said that at one point of time there were discussions to allow investments in international mutual funds as part of Liberalised Remittance Scheme (LRS) but even that didn't materialise. The LRS allows Indian investors to send up to $250,000 per financial year to other nations for travel, medical treatment, education and even investments in international stocks, debt instruments and real estate. However, international mutual fund investments do not fall in its ambit.
As the decision on investment limit remains pending with RBI, majority of overseas funds continue to refuse new investments. Only those funds are open for investment which invest in international ETFs (as they have a separate limit of $1 billion). A few other schemes also opened for subscription after SEBI allowed reopening of schemes in June to the extent of redemptions post February 1.
