MFs may get to invest $7 bn abroad

KOLKATA: Mutual funds may get more liberty in 2008 in terms of their overseas investments. They are likely to be allowed to invest upto $7 billion collectively in overseas markets, which is a good 40% jump over the present ceiling of $5 billion. The present ceiling has been raised from $4 billion just about three months back.

Both financial regulators — Reserve Bank of India (RBI) and Securities & Exchange Board of India (SEBI) — have in principal agreed to the proposal to enhance the overseas investment ceiling further. According to top industry sources, the papers are lying with the government for final clearance.

Accordingly, the individual investment ceiling is also going to be raised from the current limit of $300 million. Not only will the proposed move allow fund houses to deepen their investment basket, a higher capital outflow would also ease the pressure on RBI in managing the dollar deluge.

Mutual funds can invest in American depository and global depository receipts, equity of overseas companies, foreign debt securities in the countries with fully convertible currencies and money market instruments rated not below investment grade.

When contacted by ET, SEBI officials declined to comment on the issue. Mutual fund circles close to the development, however, said SEBI had written sometime in November to the central bank seeking permission to raise total overseas investment by all mutual funds by $2 billion to $7 billion.

According to a senior RBI official, so far the mutual funds collectively have invested just about $1 billion in overseas markets, which is well under the current limit. “However, some aggressive fund houses have exhausted their individual investment limits of $300 million. These players have requested an enhancement of the ceiling,” he said.

Supporting this, Association of Mutual Funds in India (AMFI) chairman AP Kurian said: “So far, some five to seven fund houses have launched special schemes for investment in overseas securities. The total mop-up by these funds is yet to reach anywhere near the present $5 billion cap. This notwithstanding, we have been assured by both SEBI and RBI that they are open to consider increasing the overall overseas investment limit if needed.”

AIG Global Asset Management Company (India) CEO Saurabh Sonthalia said: “This industry has taken a step forward by investing in overseas securities. However, a lot of MF houses have launched hybrid funds which invest about 65% in India and the balance 35% in overseas securities primarily because of lower limits and tax considerations. But clearly there is an increasing demand for 100% offshore products. We have also sought SEBI approval for launching an overseas fund for investing in global gold mining companies.”