Understanding the Recent Changes in Mahindra Kotak and Edelweiss Mutual Funds

[Abhilash Rathore]

Mutual funds are a popular investment option for many individuals. Recently, there have been significant changes in the operations of Mahindra Kotak mutual fund and Edelweiss mutual fund. This article aims to shed light on these changes and their implications for investors.

Suspension of Investments in Overseas Funds

Both Mahindra Kotak and Edelweiss mutual funds have made notable changes in their investment strategies. Specifically, they have restricted investments in their overseas funds. While investors can still redeem their units without any issues, new subscriptions have been suspended for the time being.

• Mahindra Kotak Mutual Fund: The fund house announced the suspension of subscriptions in its Kotak Nasdaq 100 FoF. This fund, which invests in units of overseas ETFs and/or index funds based on the Nasdaq 100 Index, is their largest overseas fund. As of the end of last December, it had assets worth ₹2,053 crore. In total, Mahindra Kotak mutual fund has four overseas funds.
• Edelweiss Mutual Fund: Edelweiss has also suspended lump-sum investments in seven of its schemes. These include the Edelweiss ASEAN Equity Off-shore Fund, Greater China Equity Off-shore, and five others. The reason for this suspension is that these schemes are nearing their overseas investment limits, which were set on February 1, 2022.

Implications for SIP, STP, and DTP Installments

• Systematic Investment Plan (SIP): SIP is a method where you invest a set amount of money in mutual funds at regular intervals. This could be monthly, quarterly, or yearly, based on the plan you choose. The main idea behind SIP is to encourage regular savings. Over time, this can lead to better returns.
• Systematic Transfer Plan (STP): STP is a strategy where money is automatically transferred from one mutual fund to another. This is particularly useful for those who want to invest a large sum but wish to avoid the risks associated with market timing. The idea is to safeguard the investment from short-term market volatility.
• Dynamic Transfer Plan (DTP): While DTP is not as commonly discussed as SIP or STP, it's essential to understand that all these methods aim to optimize returns and manage risks. DTP, like STP, focuses on transferring funds, but the strategy might be more dynamic based on market conditions and specific financial goals.

Role of SEBI and RBI

In January, the Securities and Exchange Board of India (SEBI) issued a directive to mutual funds. It asked those investing in overseas securities to halt further investments. This was to ensure that they did not breach the industry-wide limits set by the Reserve Bank of India (RBI). The overall limit for fund houses to invest in overseas securities is $7 billion. Additionally, there's a separate $1 billion limit for investments in overseas exchange-traded funds.

Performance of International Funds

International funds offer investors a chance to diversify their portfolio by investing in markets outside their home country. In the past year, these funds faced challenges and didn't perform as well as anticipated.

 

However, recent trends show a positive shift. In the last three months, international funds have seen an average return of 17%. This is a significant improvement, especially when compared to their one-year average return of -3%.

 

It's essential to note that these figures are averages, and individual fund performance can vary. When considering international funds, it's crucial to research and perhaps consult with a financial advisor to understand the potential risks and rewards.

 

The recent changes in the Mahindra Kotak mutual fund and Edelweiss mutual fund highlight the dynamic nature of the investment world. While these suspensions might seem concerning, they are a result of regulatory guidelines and the fund houses' strategies. As always, investors should stay informed and consult with financial advisors to make the best decisions for their portfolios.