Sebi doubles foreign investment limit for individual fund houses to $600 mn

The regulator has also quadrupled the quantum of investment that individual fund houses can make in overseas exchange traded funds to $200 million from $50 million at present

The Securities and Exchange Board of India (Sebi) has doubled the limit of overseas investments for individual fund houses to $600 million. However, the industry-wide cap for investing abroad remains unchanged at $7 billion.

The regulator has also quadrupled the quantum of investment that individual fund houses can make in foreign exchange-traded funds (ETFs) to $200 million from $50 million at present. The industry limit remains at $1 billion.

A number of fund houses have approached Sebi in the past few months, asking it to review the existing limits. Experts say Sebi was earlier in favour of increasing the limits on a case-to-case basis.

“The higher limits will encourage domestic managers to provide various global offerings that will give an opportunity to investors to aspire for capital growth, while de-risking their exposure across different global markets,” said a senior fund official. 

Mutual funds launching new schemes that will invest in overseas securities or ETFs have to disclose the intended amount they plan to invest in the scheme document.

For existing schemes that invest or are allowed to invest in overseas securities or ETFs investment headroom of 20 per cent of the average AUM of the previous three calendar months would be available for a particular month subject to maximum limits.

MFs shall report the utilisation of overseas limits monthly, within 10 days of the end of each month.

The move to double limits has been necessitated by the steady increase in schemes investing in US or global equities. Investing in international markets has gained traction among Indian investors owing to the benefits it offers of diversification and the opportunity to buy global brands.

Earlier this month, Edelweiss Asset Management announced a partnership with MSCI to launch Edelweiss MSCI India Domestic & World Healthcare 45 Index Fund. Principal Asset Management has hit the market with Principal Large Cap Fund. The fund will allocate 80-85 per cent of its corpus to the top 100 Indian large-caps and invest up to 15 per cent in US stocks.

In September, Axis AMC announced its first dedicated global feeder fund, Axis Global Equity Alpha Fund of Fund, an open-ended scheme that will invest in Schroder International Selection Fund Global Equity Alpha (SISFGEA). Earlier this year, Motilal Oswal Asset Management had launched an index fund that tracks the S&P 500 and Edelweiss had launched Edelweiss US Technology Equity Fund of Fund (FOF).

Permissible overseas investments for MFs include ADRs and GDRs issued by Indian or foreign companies, equity of overseas companies listed on recognised stock exchanges overseas, initial and follow on public offerings for listing at recognised stock exchanges overseas and foreign debt securities in the countries with fully convertible currencies.

There are 40 international funds in the market with total assets of about Rs 5,800 crore. Thirty two of these are equity-oriented and nine focus on the US market.