In a circular dated Jan 13th 2022, Motilal Oswal (MO) AMC announced the suspension of lump-sum investments and switch in (from other funds) into Motilal Oswal Nasdaq 100 Fund of Fund, Motilal Oswal S &P 500 Index fund and Motilal Oswal MSCI EAFE Top 100 Index fund.
Why was this done? Up to June 3rd 2021, each fund house could only invest 600 million USD in international equity in all its schemes combined. SEBI then enhanced these limits to 1 billion USD per fund house.
As of Dec 31st 2021, the combined AUM in Nasdaq 100 ETF (this includes the FOF AUM), S&P 500 Index fund and MSCI Top 100 index fund is about 900 million USD. This is approximate. Current levels are likely to be higher. Therefore the fund houses had suspended lump sum and switch-in as a precautionary measure.
They (AMFI) have appealed to SEBI to enhance this limit again. When SEBI will agree is unknown. So until that time, this suspension will be in place.
Are SIPs affected? The MO circular does not clarify this. SIPs into the index fund (up to some limit) may be allowed but clarity is required on this matter.
🔥Secure your future with our Robo-advisory tool trusted by over 3,500 investors and advisors. From effortless retirement planning to funding your children’s biggest dreams, turn your financial goals into reality. 🔥
Subscribe for money management solutions via email! (Link takes you to our email sign-up form) Join 32,000+ readers in our community.
👉 New Tool Alert! NaviPlan: A Privacy-Focused Multi-asset Tracker and Goal Planner 👈
Are ETFs affected? Indirectly, yes. Since ETFs trade as a stock, one cannot suspend buying alone. However, 71% of the ETFs AUM is from the FOF. If the FOF does not buy more units, then liquidity will suffer and price nav deviations can increase (like it did prior to the FOFs inception)
Does this affect Parag Parikh Flexicap Fund: Not yet. The fund has about Rs. 20,000 Crores AUM. Assuming 35% of it is international equity then they hold about 700 million USD.
Is SEBI to blame here? Perhaps. They did enhance limits in June 2021, but did they take into account the rate of inflow into the funds or did they listen to AMFI is not known. They should enhance limits again now.
Is Motilal Oswal to blame here? Yes. Not with respect to existing funds (N100 and SP 500) but with respect to the MSCI Top 100 fund (and Nasdaq Q 50 ETF) which were launched only in Dec 2021. They should have anticipated the increase in AUM in the other funds and should have delayed the launch.
What should investors do? Nothing. Wait until SEBI enhances the limits. Most investor portfolios are already cluttered enough. There is no need to add another fund from another AMC while the limits are increased. You are not going to miss out on anything much.