The Securities and Exchange Board of India (SEBI) has raised the limit for overseas investment to $1 billion per mutual fund within the overall industry limit of $7 billion with immediate effect. This decision comes following requests from the mutual fund industry to enhance the foreign investment limit which will allow mutual funds an opportunity to allocate a higher share of their corpus to foreign securities. In November 2020, SEBI had already doubled this limit from $300 million to $600 million per mutual fund. The investment limit for overseas exchange-traded funds (ETFs) has also been increased from $200 million to $300 million per mutual fund to be within the overall industry limit of $1 billion.
SEBI also stipulated that mutual funds which are launching new fund offers (NFOs) to invest in overseas securities or ETFs must disclose the amount that is going to be invested overseas in the scheme documents. The disclosed limits will be valid for 6 months post the closure date of the NFO, i.e the mutual fund must use that limit within 6 months.
Since February 2021, Indian mutual fund houses have launched 8 international funds following greater appetite from Indian retail investors for investment in overseas securities. Investment in international funds helps investors in diversifying their portfolio with global equities. Investing in global markets through the mutual fund route is not only a low cost and efficient way for an investor to diversify their portfolio but also allows investors to take advantage of disruptive growth through various themes. By doing this investors can potentially aim to improve the risk adjusted returns they achieve. The AUM of overseas fund of funds (FOFs) has increased 83% from Rs. 7,642 crore in November 2020 to Rs. 13,989 crore in April 2021.