« Should you invest in the DSP Global Innovation Fund NFO? How to plan tax deductions for salaried income? »

Motilal Oswal stops fresh lump sum investments into international funds. What now?

Posted on 16 Jan 2022
Author: Sayan Sircar

Tags: News

5 mins read
📢Join 2300+ readers on WhatsApp and get new post notifications!

What should investors do now that Motilal Oswal has restricted investing in its international funds? The SEBI rule and alternatives explained.

Motilal Oswal stops fresh lump sum investments into international funds. What now?

Disclaimer: Fund names in the article below are not recommendations to invest in those funds.

What is this news about?

Email from Motilal Oswal AMC

An email from Motilal Oswal AMC to investors dated 13-Jan-2022 declared that fresh lumpsum and switch-in investments into the following three funds had been temporarily restricted as of 14-Jan-2022. In contrast, current investments in SIP form will continue as will all types of redemption transactions like direct redemptions, switch-outs, STP and SWPs.

The funds impacted, and their AuM as per AMFI Dec-2021 data, are:

MOST S&P 500 fund (AuM: ₹2,470cr)
MOST Nasdaq 100 Fund of fund (FoF AuM: ₹4,110cr)
MOST MSCI EAFE Top 100 Select index fund (AuM: ₹11cr)

The issue is due to a SEBI enforced limit, as per circular dated 3-Jun-2021, on total allowed investment, at a fund house level, of $1 billion (around ₹7,400 crore) into international stocks. The entire mutual fund industry in India can remit up to $7bn.

We can see above these three funds are already inching towards the ₹7,400cr limit. In addition, the Nasdaq 100 ETF has another ₹1,710cr AuM that is not coming from the FoF and is a direct ETF investment.

SEBI has earlier tweaked this limit twice, moving the limit from $300mn to $600mn and to $1bn in June-2021.

The MOST Nasdaq 100 ETF is not impacted since the ETF is closed-ended by design. There is no concept of fresh investment unless the FoF does it or an investor approaches the AMC to directly buy (or sell) ETF units by committing a large sum of money. Fresh investors seeking Nasdaq 100 exposure can trade in the ETF units via the stock exchange. Still, it remains to be seen what the impact of the new demand will be on how the ETF price behaves relative to NAV. If the price goes above the NAV, investors should not invest in the ETF.

Do other AMCs have the same issue?

SEBI Limit utilization of AMCs

We have used AMFI AuM data for the Dec 2021 quarter to check the total AuM for all mutual funds and identified those with international exposure either partially (like Parag Parikh Flexi) or completely. The SEBI rule only refers to the remitted amount for these funds, and not the capital gains. We have used AuM as a proxy for this remitted amount.

We see that Axis, SBI, Parag Parikh, FT, and Edelweiss are all above the 60% mark, with Axis touching 80% closely followed by SBI. A bulls-driven uptick in the markets, say by 25%, will push these AMCs very close to the SEBI limit. Existing investors in these funds will not have any issue but new investors, looking for investing into these AMCs’s international funds, should be wary of how close the AMC is to the SEBI limit. 100% domestic funds are, of course, not impacted.

Did you know that we have a private Facebook group which you can join for free and ask your own questions? Please click the button below to join.

What are the alternative funds?

We are presenting some alternative funds currently available to Indian investors who wish to invest in a manner similar to the three affected Motilal Oswal funds. The fund names below are not recommendations.

Before investing, investors should carefully check the tracking error and expenses of these funds are acceptable and overall, the funds are a correct fit to their risk profile and goals.

S&P 500 fund

There is no direct replacement. Mirae has a fund called Mirae Asset S&P 500 Top 50 ETF Fund of Fund, which takes the S&P500 and invests only on the top 50 stocks from the S&P500, measured by float-adjusted market capitalization. While most of the index returns tend to come from the largest stocks in a market capitalisation weighted index, this fund will not be a 1:1 replacement of an S&P 500 fund.

Nasdaq 100 fund

Nasdaq 100 funds are available from Aditya Birla, ICICI Prudential and Kotak AMCs.

MSCI EAFE Top 100 Select index fund

There is no direct alternative fund currently available in India.

What should investors do next?

Investors have two alternatives: 1) invest in the alternative funds or 2) simply wait for the SEBI limit to be adjusted just like it has happened in the past. Given investor’s interest in these funds over the last few years, driven by a strong bull-market rally in international stocks, it can be hoped that SEBI will revise the limit upwards.

In the interim, investors may direct lumpsum investments into other funds or take this opportunity to rebalance their portfolios.

Related reading:

What's next? You can join the Arthgyaan WhatsApp community

You can stay updated on our latest content and learn about our webinars. Our community is fully private so that no one, other than the admin, can see your name or number. Also, we will not spam you.

To understand how this article can help you:

If you have a comment or question about this article

The following button will open a form with the link of this page populated for context:

If you liked this article, please leave us a rating

The following button will take you to Trustpilot:

Discover an article from the archives

Worked out case studies for goal-based investing

Case study: how can this middle-aged investor with two children plan for retirement and children's goals?

This article shows how a single-income middle-aged couple with two small children reach their retirement and children’s goals.
Case study: can this double income single kid family reach FIRE at 50?

This article shows how a double-income couple with a 2-year old reach their FIRE dream at the age of 50.
Case study: how a family in their mid-30s with a newborn kid can FIRE and invest in real estate?

This article shows how a double-income couple with a newborn child can invest for their future goals of FIRE and real-estate investment.
Case study: how this double income recently married family can perform DIY goal-based investment planning

This article shows how a young just-married couple can invest for future goals using the Arthgyaan goal-based investing tool.
Case Study: How should couples in their 40s with a new baby plan their financial future?

Did you welcome a bundle of joy in your 40s? This article will discuss ways of planning the child’s (and your’s financial future)
Case study: how this double income single kid family can perform DIY goal-based investment planning

This article shows how a very typical salaried couple with one child can invest for future goals using the Arthgyaan goal-based investing tool.

Previous and next articles:

<p>A new Fund of Fund wants to capture the alpha from innovative technology companies globally. Should you invest?</p>

Review International Investing

Should you invest in the DSP Global Innovation Fund NFO?

A new Fund of Fund wants to capture the alpha from innovative technology companies globally. Should you invest?

Published: 15 January 2022

11 MIN READ

<p>This post targets explicitly new investors who are getting started with investing. We cover the most common, i.e. 80C, 80D, HRA, home loan and educational loan interest deductions.</p>

Tax

How to plan tax deductions for salaried income?

This post targets explicitly new investors who are getting started with investing. We cover the most common, i.e. 80C, 80D, HRA, home loan and educational loan interest deductions.

Published: 18 January 2022

11 MIN READ

Latest articles:

<p>This article shows how to understand the impact on your portfolio if you stop investing for a few years between today and retirement.</p>

Portfolio Construction

How much lower portfolio value do you end up with if you do not invest for a few years in between?

This article shows how to understand the impact on your portfolio if you stop investing for a few years between today and retirement.

Published: 24 April 2024

4 MIN READ

<p>This article explains what happens if you withdraw from your EPF to buy a house and who should or shouldn’t withdraw from EPF for this reason.</p>

House Purchase

Should you withdraw from your EPF to buy a house?

This article explains what happens if you withdraw from your EPF to buy a house and who should or shouldn’t withdraw from EPF for this reason.

Published: 21 April 2024

7 MIN READ

Topics you will like:

Asset Allocation (21) Basics (8) Behaviour (12) Budgeting (12) Calculator (25) Case Study (6) Children (17) Choosing Investments (40) FAQ (12) FIRE (13) Gold (21) Health Insurance (5) House Purchase (29) Insurance (16) International Investing (12) Life Stages (2) Loans (17) Market Data (7) Market Movements (16) Mutual Funds (46) NPS (7) NRI (19) News (18) Pension (8) Portfolio Construction (53) Portfolio Review (27) Reader Questions (8) Real Estate (7) Research (5) Retirement (38) Review (15) Risk (6) Safe Withdrawal Rate (5) Set Goals (28) Step by step (15) Tax (59)

Next steps:

1. Email me with any questions.

2. Use our goal-based investing template to prepare a financial plan for yourself.

Don't forget to share this article on WhatsApp or Twitter or post this to Facebook.

Discuss this post with us via Facebook or get regular bite-sized updates on Twitter.