Parag Parikh mutual fund has recently announced that it
would not be accepting fresh lumpsum or fresh sip registrations in Parag Parikh
Flexi Cap fund from February 2, 2022.
This will in no way affect ongoing SIPs and STPs registered
prior to February 2, 2022.
Parag Parikh Flexi Cap Fund invests up to 35% of its total corpus into foreign stocks, mostly and usually US based companies with Technology being the preferred sector.
What is Parag Parikh Flexi Cap Fund?
Parag Parikh Flexi Cap Fund as the name suggests is a flexi
cap fund.
A flexi cap fund by mandate requires a minimum of 65%
investment in to equity at all times.
It is considered an equity fund for taxation purposes and
accordingly taxed.
A flexi cap fund has no restriction with respect to market caps
or sectors, it is the most flexible of all equity funds because of this reason.
Parag Parikh Flexi Cap fund along with the domestic
market, also invests up to 35% of its
total corpus into foreign stocks.
It has a focused approach despite not being a focused fund
with the number of holdings .
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Why the restriction?
SEBI has directed fund houses to stop accepting fresh
investments into schemes investing in foreign companies.
This direction has been warranted since the mutual fund
industry had surpassed the limit of $ 7 billion for overseas investments.
This is applicable for all fund houses with schemes
investing in foreign companies.
Therefore fund houses have been communicating their
investors about the same which is applicable on sip, lumpsum and stp transactions.
This will have no bearing on past investments nor sip
registered previously.
Can the limit be raised?
Yes and most likely it will be soon.
The exact date and the confirmation of the same has to yet
be confirmed though.
The limit was last set in 2008 and has never been raised
since then.
This makes sense since Indian investors in the past have not
given international investing much importance.
This is true for fund houses too who rarely launched any new
international mutual fund schemes from 2008 to 2020.
Therefore since there was no fresh fund launches and
investors did not show keen interest in international mutual fund schemes,
there was no need to raise the limit.
We also need to be aware that 10-12 years ago the mutual fund
industry both in terms of investors and fund houses was still at a nascent
stage.
What changed after 2020?
During the market crash of 2020 due to the corona outbreak,
the Indian stock market was one of the worst affected.
After a couple of months when recovery in terms of market
returns picked up, developed markets initially paced much ahead of the
developing economies.
This is when diversification as a concept gained more
prominence.
This meant investors were now ready to look beyond domestic
markets for their investments and mutual fund houses which had hardly launched
any international fund schemes were now changing their stance.
This can be better understood by the table below
|
Motilal Oswal S&P 500
Index |
|
Axis Global Equity Alpha FoF |
|
Invesco India Invesco Global
Consumer Trends FoF |
|
Kotak International REIT FoF |
|
Kotak Nasdaq 100 FoF |
|
Axis Greater China Equity FoF |
|
HSBC Global Equity Climate
Change FoF |
|
SBI International Access – Us
Equity FoF |
|
Mirae Asset NYSE FANG +ETF |
|
BNP Paribas Funds Aqua FoF |
|
Axis Global Innovation FoF |
|
Kotak Global Innovation FoF |
|
IDFC US Equity FoF |
|
Mirae Asset S&P 500 Top 50
FoF |
|
HDFC Developed World Indexes |
|
ICICI Pru Nasdaq 100 Index |
|
Mahindra Manulife Asis Pacific
Reits FoF |
|
Aditya Birla SL Nasdaq 100 FoF |
|
Motilal Oswal MSCI Top 100
Select Index |
|
PGIM India Global Select Real
Estate Securities FoF |
|
Mirae Asset Hang Seng Tech ETF |
|
Nippon India Taiwan Equity |
|
Motilal Oswal Nasdaq Q 50 ETF |
|
ICICI Pru Strategic Metal
& Energy Equity FoF |
Close to 25 international funds were launched in a period of
around 20 months which makes for an average of more than 1 fund being launched
every month.
This has always been the trend with the overall industry
though, most thematic schemes are usually launched when the theme is in demand.
The point of diversification is to mitigate risks and yet
ironically most of the investments in International funds have gone to US based
funds.
This gives impetus to the old belief that investors are motivated
by short term volatile returns rather than long term stable gains.
Why are domestic funds restricting investments?
Even domestic mutual funds which are primarily investing in
domestic companies with nominal exposure to international companies have
stopped fresh investments and with good reasons.
In order to gain international exposure, investors would
move their attention towards such domestic mutual funds since the international
mutual funds cannot accept fresh investments.
This would mean a higher inflow for such domestic mutual
funds within a short period.
Since they themselves cannot invest in international
companies, they would be forced to invest these inflows into domestic companies
which affect the overall portfolio stability.
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