MF-Query Board

How do I invest in global equities via mutual funds? - Ajinkya Pathak 

After February 1, 2022, international funds can no longer accept new subscriptions to lump sum, systematic investment plans (SIP) or systematic transfer plans (STP) in order to comply with RBI-imposed industry-wide offshore limitations. For mutual funds to invest in foreign securities and funds, the Securities and Exchange Board of India (SEBI) has established an overall industry maximum of USD 7 billion and a separate restriction of USD 1 billion. Switching from regular to direct plans, and vice versa, won’t have any effects. There will be no effect on systematic withdrawal plans, switch-outs or redemptions from these funds.

You may still invest through fund of funds (FOFs), which invest in ETFs listed on foreign exchanges if you are searching for global diversity. Additionally, you can conduct business with other participants in global ETFs and funds through stock exchanges. However, since fund companies have ceased accepting new subscriptions, no new units will be created in funds with equities as the underlying investments. Mutual fund investments outside of India are largely prohibited since the sector is almost at the USD 7 billion thresholds that the RBI set in 2008

There are about 65 different worldwide investment schemes and most of them are set up such that they all belong to the same USD 7 billion pool. However, there is a segment that offers a separate limit of USD 1 billion to invest outside. Currently, only four schemes are a part of this separate pool out of the total 65 schemes. All four schemes are passive strategies and offer exposure to some of the most prominent indexes in the US through overseas ETFs. These are:

◘ Kotak Nasdaq 100 Fund of Fund
◘ Aditya Birla Sun Life Nasdaq 100 Fund of Fund
◘DSP Global Innovation Fund of Fund
◘Navi US Total Market Fund of Fund.

To sum up, if you have no exposure to international stocks in your portfolio, you can look at investing in FOFs which are investing in overseas ETFs. Investing in global equities through mutual funds is a superior option for retail individuals rather than engaging in direct equities.

Can you suggest some good tax-saving funds to invest in the current market scenario? - Vignesh Sakhare

Tax-saving funds or Equity Linked Savings Schemes (ELSS) help you to save Income Tax under Section 80 C of the Income Tax (IT) Act. You can invest a maximum of `1.5 lakhs in ELSS’ and claim tax deductions on your investments every financial year. Taxsaving mutual funds or ELSS’ typically fall in the equity mutual fund category. These funds invest at least 80 per cent in stocks in accordance with the Equity Linked Saving Scheme, 2005, notified by the Ministry of Finance. Therefore, they have very high risk. Investors should be aware of this aspect, especially if you are a first-time investor in equity.

Compared to your usual investments like Public Provident Fund, ELSS’ do not offer guaranteed returns. And one may even considerable losses in a falling market. First of all, these schemes have the potential to offer higher returns. As you know, these schemes invest in stocks. And stocks typically offer higher returns over a long period of time. For example, the ELSS category offered an average return of around 15 per cent over 10 years. Secondly, ELSS’ have the shortest lock-in period among tax-saving investments. Most other investment options under the Section 80 C basket are government-backed investments.

They typically come with longer lock-in periods. For example, PPF is a 15-year product that allows partial withdrawals after six years. Thirdly, and the most important point to remember, is that ELSS is a great first step for many investors. They often start with ELSS and the mandatory lock-in period of three years in these schemes helps them to weather volatility in the stock market. Once these investors see the rewards in, say, five or seven years, they start investing more money in equity schemes. If you are interested in investing in these schemes, here are some ELSS funds to consider for investing in the forthcoming period: