Sebi directive stirs debate on $1-bn threshold

This is reminiscent of the time when the industry had reached the $7 billion foreign investment limit and had to suspend flows in funds investing in stocks overseas, said Chirag Mehta, CIO, Quantum AMC

New Delhi: Sebi’s directive to mutual fund (MF) schemes with investments in ETFs listed on foreign exchanges comes as the Mutual Fund industry reaches close to the investment limit of $1 billion set by the regulator for this category, says Chirag Mehta, CIO, Quantum AMC.

This is reminiscent of the time when the industry had reached the $7 billion foreign investment limit and had to suspend flows in funds investing in stocks overseas. These limits probably were put in place to limit outflows of foreign currency within a limit to reduce the impact on balance of payments and thereby on the Indian currency, Mehta said.

“The result will be that these mutual fund schemes will have to limit their inflows. It’s been a long time since these limits were set and are probably due for enhancement,” he said.

The Association of Mutual Funds India (AMFI) received a directive from the Securities and Exchange Board of India (SEBI) instructing a cessation of new investments in ETFs allocating funds to overseas markets, as per Angel One. This action comes in response to the nearing breach of the upper limit for ETFs set by the Reserve Bank of India (RBI) for overseas investments, currently standing at $1 billion out of a total industry-wide limit of $7 billion. Effective from April 1, 2024, fund of funds (FoFs) investing in exchange-traded funds (ETFs) listed on international markets will be required to halt the acceptance of new investments. This move follows the regulatory framework aimed at maintaining adherence to RBI’s prescribed limits on foreign investments by mutual funds, as per Angel One.

Fractional ownership of rent-yielding realty assets

Investors can now have fractional ownership of rent-yielding real estate assets by making a minimum investment of Rs10 lakh, with markets watchdog Sebi notifying the amended regulations for real estate investment trusts.

Amid rising demand for high-value realty assets, Sebi has notified the framework for Small and Medium Real Estate Investment Trusts (SM REITs), and experts opined that the development will have a significant positive impact on the emerging fractional ownership sector in the country. The watchdog notified the amended regulations for REITs on March 8, permitting fractional ownership of REITs and it will encompass commercial and residential properties. In November last year, Sebi board cleared the amendments to REITs Regulations, 2014, in order to create a regulatory framework for the facilitation of SM REITs, with an asset value of at least Rs50 crore vis-a-vis minimum asset value of Rs500 crore for existing REITs. As per the notification, the minimum price of each unit of the scheme of the SM REIT shall be Rs10 lakh or such other amount as may be specified by Sebi from time to time.

“The size of the asset proposed to be acquired in a scheme of the SM REIT is at least rupees fifty crores and less than rupees five hundred crores,” it added.

The framework for SM REITs provides for the structure, migration of existing structures meeting certain specified criteria, obligations of the investment manager, including net worth, experience, and minimum unit holding requirement, investment conditions, minimum subscription, distribution norms and valuation of assets.