Overseas investment norms eased

With the Reserve Bank of India (RBI) rationalising its guidelines, resident individuals now have the freedom to invest in any listed foreign company.

Individuals no longer face the restriction of investing only in a listed foreign company that has at least a 10 per cent stake in a listed Indian company.

"The requirement of 10 per cent reciprocal shareholding in listed Indian companies by overseas companies has been dispensed with," the RBI said in a circular to banks, accepting the recommendation of the S S Tarapore Committee on fuller capital account convertibility.

The condition had restricted the overseas equity investment universe to just a handful of companies like Unilever PLC, the parent of Hindustan Lever, and resulted in this investment avenue being spurned by potential individual investors.

Investments by mutual funds in equities overseas have also not taken off despite the RBI raising the overall ceiling to $3 billion from $2 billion. The Securities and Exchange Board of India (Sebi) has put a ceiling of 10 per cent of a fund's net asset value (NAV), subject to an overall limit of $50 million.

The Tarapore committee had noted that the first limit restricted small mutual funds that might have the skills for investing abroad, while the second limit thwarted large mutual funds and consequently recommended their abolition. Indian portfolio investments abroad have drawn a blank so far.

The individual investments will form a part of the overall remittance limit of $50,000 per financial year for both current and capital account transactions, being raised from $25,000 per calendar year.

Remittances by resident individuals towards gifts and donations have now been included in the $50,000 limit. Individuals will have to make a declaration for all remittances made and also be required to disclose the source of funds.

Foreign financial products, including mutual funds, can now be marketed in India by Indian as well as foreign banks, including those not having an operational presence in India, with the prior approval of the RBI.