Mutual Funds Allowed by SEBI to Resume Overseas Investing

SEBI (Securities and Exchange Board of India) has lifted restrictions preventing domestic mutual funds from investing overseas.

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In February, SEBI advised mutual funds investing in overseas securities to halt further investments in foreign stocks to avoid breaching regulatory limits.

Under current rules, which were revised last June, mutual funds can make overseas investments up to USD 1 billion per mutual fund, within an overall industry limit of USD 7 billion.

The industry was in February said to be close to breaching the USD 7 billion limit, prompting SEBI to direct funds to suspend overseas investments.

According to local reports, mutual funds are allowed to resume subscriptions and make investments in overseas funds and securities up to the headroom available – without breaching the overseas investment limits.

AMFI (Association of Mutual Funds of India) has been advised to communicate this to all AMCs (asset management companies), and is additionally required to ensure the total utilisation of the overseas investment limit by each AMC or mutual fund remains capped at the limits that were specified last June.

AMFI had asked SEBI to increase the industry-wide limit, but this is said to be unlikely in part because it could further pressure the rupee, which is already at historic lows.

Reports say SEBI has been in favour of an increase in the limit, but the RBI (Reserve Bank of India) is reluctant to raise the limit. Any increase in the limit would have to be approved by both the government and the RBI.

Regulators may not see a need to raise the limit because other routes are available to invest overseas, such as the LRS (liberalised remittance scheme), which allows resident Indians to freely remit up to USD 250,000 each financial year for foreign investments.