Leg-up for offshore investments by MFs

The Securities and Exchange Board of India (Sebi) on Wednesday said a mutual fund house can invest $300 million overseas as against the $100 million limit at present.

The regulator 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 to encourage more mutual funds to launch offshore schemes, follows the Reserve Bank of India's decision yesterday to hike the overall limit for overseas investments by mutual funds from the earlier $4-5 billion.

Sebi has also done away with the requirement of 10 years experience for investing in foreign securities for being eligible to invest in foreign exchange traded funds. The move will encourage newer mutual funds too to launch offshore funds for domestic investors.

Further, mutual funds can now invest in ADRs/GDRs issued by foreign companies, initial and follow on public offerings for listing at recognised overseas stock exchanges, investment grade foreign debt securities in countries with fully convertible currencies and money market instruments, government securities, 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 Real Estate Investment Trusts (REITs) listed in recognised stock exchanges overseas or unlisted overseas securities (not exceeding 10 per cent of their net assets).

A slew of fund houses including Sundaram BNP, DSP-Merrill Lynch, Fidelity, ICICI-Prudential, Tata AMC and Kotak Mutual Fund have launched schemes, which would 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 which would invest in overseas equities.

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