Market regulators from both sides said the "mutual recognition" of funds would allow mainland China and Hong Kong funds to be distributed in each other's markets from July 1, Hong Kong's Securities and Futures Commission (SFC) said in a statement.
"The mutual recognition of funds initiative is a major breakthrough in the opening up of the mainland's funds market to offshore funds," SFC Chairman Carlson Tong said in the statement.
"It will also open up a new frontier for the mainland and Hong Kong asset management industries and make available a wider selection of fund products to investors in both markets," he said.
In a joint statement, the SFC and the China Securities Regulatory Commission called the move an "important milestone".
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"The (mutual recognition of funds) is an important element in the opening up of the mainland's capital market," it said, adding the quota for each side had been set at 300 billion yuan (USD 49 billion).
China keeps a tight grip on its capital markets, out of fears sudden inflows or outflows of funds could threaten financial stability and reduce its control.
In November last year, the stock market in the Chinese financial hub of Shanghai and the Hong Kong bourse launched a scheme allowing investors on each exchange to trade selected stocks on the other through their existing accounts.
"Besides stocks, mainland investors can now invest in the fund products of Hong Kong's fund companies and vice versa," Haitong Securities analyst Zhang Qi told AFP.
"The main impact will be an expansion of investment channels for mainland and Hong Kong investors.