mutual fund news: After Motilal Oswal MF, will the PPFAS Flexi Cap Fund limit inflows?

Motilal Oswal Mutual Fund’s decision to halt lump-sum investments in three of its international funds after approaching the Sebi limit on overseas investments has clearly baffled many investors. Many mutual fund investors wondered if their investments in PPFA’s Flexi Cap Fund, the current favorite of many investors, would also be affected in the near future.

In a circular dated January 13, Motilal Oswal AMC announced the suspension of lump-sum investments and the transfer (from other funds) to the Motilal Oswal Nasdaq 100 fund of funds, the Motilal Oswal S&P 500 Index fund and the Motilal Oswal MSCI EAFE Top 100 Index. . The asset management company (AMC) said it had taken action after approaching the global investment limit of $1 billion in foreign stocks set by the market regulator.

According to a Sebi circular dated November 5, 2020, mutual funds may invest overseas subject to a maximum of $1 billion per fund house, within the overall industry limit of $7 billion. . He further stated that mutual funds may make investments in overseas exchange-traded funds (ETF(s)) subject to a maximum of $300 million per mutual fund, in the global industry limit of $1 billion.

Many fans of PPFAS Mutual Funds wanted to know if the PPFAS Flexi Cap fund which invests 25-35% in foreign stocks will be forced to restrict entries into the program in the future. Many of them also wondered if the popular system would be forced to change its wallet if it grew in the current phase. The PPFAS Flexi Cap program manages assets worth Rs 19,933 Crore as of December 31, 2021.

The plan will not be impacted immediately. Currently, it invests around $600-700 million in foreign stocks.

“Currently, we are well below Sebi’s prescribed limit of $1 billion for overseas investments. This limit is calculated on a cost basis and not on market value. We hope that this limit will be increased soon as there have been discussions on the same with the relevant authorities,” said Neil Parag Parikh, Chief Executive Officer of PPFAS MF.

Sebi is expected to increase the limit by $1 billion this year, some mutual fund participants say. Until June 2021, each fund house could only invest $600 million in international equities across all of its programs combined. SEBI then raised those limits to $1 billion per fund house in 2021.

However, some mutual fund advisors are already asking their clients to be prepared for an eventuality. They say it is crucial for investors who have invested primarily in the PPFAS plan to pre-screen other multi-cap plans that they can use in an eventuality.

“We have to understand 2-3 things in this case. First, this is an open-end fund we’re talking about. They are not required to invest, say, 30% in international stocks. They take exposure because they love the opportunity. Thus, a modification of the exposure is authorized in this particular regime. The fund manager may decide to reduce the exposure so as not to breach Sebi’s mandate. However, this may cause a slight variation in yields. I don’t think that should be a problem for investors. Second and the important part is that the sebi mandate is not on the investment value and not on the market value. So if the program continues with the exposure it has today, they are good even if the AUM inflates due to market movement. I think investors have nothing to fear here,” says P Chokkalingam, director of Chennai-based Prakala Wealth Management.


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