Mutual Funds re-open overseas investment funds
31st Mar, 2023
Mutual fund houses are re-opening their international funds for investment due to the potential loss of long-term capital gains tax benefits if invested after the end of March 2023.
- In January 2022, market regulator SEBI had banned mutual funds’ investments in overseas stocks as it was inching closer to the $7 billion limit and a separate cap of $1 billion for overseas ETFs.
- Following a representation from the industry and meltdown in global markets, SEBI re-opened overseas investments last June but within the individual mutual fund cap as of last February.
- With the steady fall in the international markets and change in taxation rules from April 1, mutual funds left with some headroom want investors to take advantage of overseas investment.
International Mutual Funds:
- International mutual funds are equity funds that primarily invest in stocks of companies listed outside India.
- These funds help to diversify the investment portfolio of the mutual fund and help the funds to obtain better returns by taking a higher risk associated with investing in international markets.
What are overseas investment funds?
- Foreign investment refers to the investment in domestic companies and assets of another country by a foreign investor.
- Large multinational corporations will seek new opportunities for economic growth by opening branches and expanding their investments in other countries.
- A foreign fund is a type of fund that invests in companies that are based internationally, or outside the investor's country of residence.
Foreign funds are also known as international funds. Foreign funds can be mutual funds, closed-end funds, or exchange-traded funds.
Rules governing international investments:
- The Overseas Investment Rules and Regulations, notified under the Foreign Exchange Management Act, will be administered by the Reserve Bank of India (RBI), and shall subsume all existing norms pertaining to overseas investments as well as the acquisition and transfer of immovable property outside India.
- A No-Objection Certificate (NOC) will be mandatory for any person who has a bank account classified as a Non-performing asset, or is labelled a wilful defaulter by any bank, or is under investigation by a financial service regulator, the Enforcement Directorate (ED) or the Central Board of Investigation (CBI).
- Further, no Indian resident will be permitted to make investments in foreign entities that are engaged in real estate business, gambling in any form and dealing with financial products linked to the Indian rupee without the central bank’s specific approval.