Restrictions on International Funds (RBI SEBI Limit 2022) – Should you Worry?

No. Please don’t worry about this too much. This is temporary.

If you have been investing in international funds, you would have heard the news about the curbs on international funds stopping them from investing abroad.

I will explain in simple terms about what is exactly happening and why you should not worry about this.

All this is happening because of the RBI limits on overseas investments and SEBI’s rules for funds investing in international funds. You need to understand 2 things first:

  • RBI has specified an upper limit to which the entire Indian mutual fund industry can invest in overseas instruments. This limit today (Jan-2022) is at USD $7 billion for the entire MF Industry.
  • SEBI, in turn, has its own rule that puts a limit on the maximum amount one single AMC or fund house can invest abroad. Currently, this limit is at USD $1 Billion per AMC.

Given the increased interest of investors in choosing international funds (list of international funds and ETFs), slowly and gradually, the limits mentioned above are about to be breached.

Update – In fact, AMFI has advised all the AMCs not to increase international exposure beyond Feb 1, 2022, as the limit has been breached now (link)

By the way, the limit has been revised several times in the past years. Here is a history of past limit increases:

  • 2021 – RBI’s MF industry limit $7 Billion; SEBI’s AMC Limit $1 Billion
  • 2020 – RBI’s MF industry limit $7 Billion; SEBI’s AMC Limit $600 Million
  • 2008 – RBI’s MF industry limit $7 Billion; SEBI’s AMC Limit $300 Million
  • 2007 – RBI’s MF industry limit $5 Billion; SEBI’s AMC Limit $300 Million

So I am pretty sure that very soon, RBI & SEBI will announce an increase in the limits again. From what I understand, consultations would already have been on for a while and we will soon see an upward revision in the limits.

International mutual funds and many other funds that invest only a part of their portfolios abroad have/will suspend new inflows. But the suspension is likely to be a temporary one and once the limits are revised upwards, the suspensions shall be revoked.

Please note a few things so that there is no confusion:

  • Your existing investments in impacted funds will not be affected.
  • Do not rush to sell such funds because of this limit breach. This is not a fund issue or problem but an RBI-SEBI limit thing.
  • Investing in international funds remains a good strategy from a geographical diversification perspective.

All said and done, please Don’t Worry.

Update – Once the limits are increased or when there is further development, I will update this article accordingly.

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