SEBI increases foreign investment limit for mutual fund houses to $1 billion

SEBI, the capital markets regulator, increased the overseas investment limit for a mutual fund firm from $600 million to $1 billion on Thursday.

The Securities and Exchange Board of India ( SEBI ) announced in a circular that the entire mutual fund industry maximum has been set at $7 billion. The greater ceiling would allow mutual funds to deploy a larger portion of their assets to overseas securities.

 The move comes in response to mutual fund sector efforts to increase the foreign investment limit. “Mutual funds can make overseas investments subject to a maximum of $1 billion per mutual fund, within the overall industry limit of $7 billion,” Sebi said.

Furthermore, mutual funds are permitted to invest in foreign Exchange Traded Funds (ETFs) up to $300 million per mutual fund, subject to a total industry cap of $1 billion. Previously, each fund firm was allowed to invest up to $200 million.

According to SEBI, the increased investment restriction would take effect immediately. Investment limitations must be stated in scheme papers at the time of a new fund offer (NFO) and investment limitations on ongoing schemes, according to SEBI, will now be soft limits for the purpose of mutual funds reporting solely on a monthly basis in a predefined manner.

Mutual funds that are establishing new schemes and aim to invest in foreign securities or exchange-traded funds (ETFs) must make sure that the scheme documents declare the amount they intend to invest in such instruments. The restrictions stated in the programme papers are applicable for six months after fresh fund offers have closed (NFO).

SEBI increased the foreign investment limit per mutual fund firm to $600 million from $300 million in November 2020. The watchdog also boosted the foreign investment limit for domestic mutual funds in overseas ETFs from $50 million to $200 million.

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