Sebi raises bar for MF investments abroad

The Securities and Exchange Board of India (Sebi) today increased the individual limit for mutual fund houses on their overseas investments by $100 million to $300 million. It has also dispensed with the sub-ceiling linked to the net assets of a mutual fund as on March 31, 2007, and extended the scope of their overseas investments to Real Estate Investment Trusts (REITs).

The move, which is aimed at encouraging more mutual funds to launch offshore schemes, follows the Reserve Bank of India's decision yesterday to hike the overall limit of $5 billion for overseas investments by mutual funds from the earlier $4 billion.

Sebi has also done away with the requirement of 10 years experience of investing in foreign securities for being eligible to invest in foreign exchange traded funds.

Further, mutual funds can now invest in American depositary receipts and global depositary receipts, initial and follow on public offerings at recognised overseas stock exchanges, investment grade foreign debt securities in countries with fully convertible currencies and money market instruments, government securities. Sebi has also allowed investment in derivatives traded on recognised stock exchanges overseas only for hedging, and portfolio balancing with underlying as securities and investment grade short term deposits with banks overseas, repos as pure investment avenues without involving borrowing of funds.

Sebi, in a press release, said it will allow mutual funds to invest in securities issued by overseas mutual funds registered with overseas regulators and investing in approved securities or REITs listed in recognised stock exchanges overseas or unlisted overseas securities (not exceeding 10% of their net assets).

The Reserve Bank of India has been increasing the overseas investment limits by mutual funds over the last one year or so. During November last year, the central bank hiked the overseas investment limit from $2 billion to $3 billion, which was further increased by another $1 billion in April this year to $4 billion.

A slew of fund houses including Sundaram BNP, DSP-Merrill Lynch, Fidelity, ICICI-Prudential, Tata AMC and Kotak Mutual Fund have launched schemes, which will invest either fully or partially in overseas equity investments, or in overseas ETFs. UTI Mutual Fund and HSBC MF are also planning to launch schemes that would invest in overseas equities.