The Reserve Bank of India (RBI) on Thursday raised the aggregate ceiling for overseas investment by mutual funds registered with the Securities & Exchange Board of India (Sebi) from $5 billion to $7 billion with immediate effect.
The existing facility to allow a limited number of qualified Indian MFs to invest cumulatively up to $1 billion in overseas exchange-traded funds (ETFs), as permitted by Sebi, will continue. These investments would be subject to the terms & conditions, as well as operational guidelines issued by Sebi.
Industry sources said increasing the overseas investment limit is a welcome measure, but the regulators would have to ascertain whether the current limit that has been fixed was fully used or not. Barely three or four schemes have been launched with the objective of investing in overseas markets.
Sandesh Kirkire, MD, Kotak MF, said the earlier limit of $5 billion was not fully utilised, but hiking the limit was a welcome step. RBI is clearly sending a signal that increased overseas investment can now take place through the MF route, he added.
Also, with rising financial literacy, an increasing number of investors, particularly high net-worth individuals, would like to diversify their portfolios and such an enhancement in the limit provides them greater scope in that direction. ?Such measures taken by the regulator can also be termed baby steps towards fuller capital account convertibility,? he said.
In January 2007, Sebi had enhanced the overseas investment limit to $5 billion. Sebi had said this would be with a sub-ceiling for individual MFs, which should not exceed 10% of the net assets managed by them as on March 31 of each relevant year and subject to a maximum of $150 million per mutual fund.