No more flows in Kotak's Nasdaq ETF fund, but here are the alternatives
Kotak Mutual Fund (Kotak MF) has suspended accepting fresh investments in its Kotak Nasdaq Fund of Fund, after the fund hit the international investment limit of $300 million for funds investing in international exchange traded funds (ETFs). The fund had assets under management of ₹2,053 crore ($247 million) as of 31 January, 2023, closing in on the $300 million-limit.
Depending on further directions from market regulator Securities and Exchange Board of India (Sebi), the fund may be reopened later.
“We have hit the Sebi-prescribed limit of overseas investment in ETFs. We have applied to Sebi for increase in limit as the industry still has surplus limit available. We will open the fund if we get additional limit. Our funds will remain shut for subscriptions only till such time. This is only for subscriptions. There is no change for redemptions. The fund continues to provide daily redemptions and liquidity to all investors,” said Nilesh Shah, managing director of Kotak Mahindra Mutual Fund.
Funds still open
In February 2022, domestic mutual fund schemes that invested in shares of companies listed on foreign exchanges either directly or indirectly through index funds or other actively-managed funds, couldn’t do that anymore as the MF industry limits were not enhanced by Sebi.
Later, these schemes got some relief as Sebi allowed them to invest to the extent they had seen redemptions in their schemes since February, 2022. A few international schemes were reopened. Fund houses such as Nippon India MF, ICICI Prudential MF, Mirae MF and Edelweiss MF were able to reopen their schemes, albeit with some limits. However, MFs investing in overseas-listed ETFs were yet to come close to their limits, and it was business as usual for them.
At least as of now, several of these funds remain far from hitting their $300 million-limit.
For example, Aditya Birla SL Nasdaq 100 FOF and Invesco EQQQ Nasdaq 100 ETF FOF each have $280 million headroom (after accounting for their existing assets under management – AUM – from the $300 million-limit) before hitting their respective limits. But keep in mind that both investor flows and market movements can influence the AUM of these schemes. (see: table)
MF distributors say investors should take an asset-allocation approach when it comes to international investing, and if their international allocation has reduced due to correction in US markets, they can do lumpsum investments in such funds.
“Nasdaq has seen quite a bit of correction. If investors’ international allocation has reduced by 6-9%, they can use such funds for lumpsum investments to reduce such gaps,” says Amol Joshi, founder of Plan Rupee Investment Services.
Nasdaq 100 has surged 15% so far this year. However, this US market benchmark index is still 24% below its all-time high in November 2021.
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