International Mutual Fund Schemes: SEBI enhances overseas investment limits for MFs

Investing in international stocks has always been considered as a part of diversification for an investment portfolio. Since the lows of March 2020, the global stock markets have not just rebounded but the growth looks promising in future too. To make sure the potential of equities is well within the reach of Indian investors, the market regulator SEBI has enhanced the overseas investment limit for mutual funds. The new limits will apply to the overall industry and will also have a separate limit for mutual fund individually and Exchange Traded Funds (ETFs).

On November 5, 2020, SEBI issued a circular regarding the enhancement of Overseas Investment limits for Mutual Funds. The new limits will be effective immediately and, therefore, the fund houses are expected to follow-up with the new rules anytime soon.

Mutual Funds can make overseas investments subject to a maximum of US $ 600 million per Mutual Fund, within the overall industry limit of US $ 7 billion. In case of overseas investments, US $ 50 million would be reserved for each Mutual Fund individually, within the overall industry limit of US $ 7 billion.

Mutual Funds can make investments in overseas Exchange Traded Fund (ETF(s)) subject to a maximum of US $ 200 million per Mutual Fund, within the overall industry limit of US $ 1 billion.

Mutual Funds launching new schemes or New Fund Offers (NFOs) and intending to invest in Overseas securities/Overseas ETFs shall ensure that the scheme documents shall disclose the intended amount that they plan to invest in Overseas securities/Overseas ETFs subject to maximum limits.

Such limits disclosed in scheme documents will be valid for a period of six months from the date of closure of NFO. Thereafter the unutilized limit, if any, shall not be available to the Mutual Fund for investment in Overseas securities /Overseas ETFs and shall be available towards the unutilized industry wide limits.

For all ongoing schemes that invest or are allowed to invest in Overseas securities/ Overseas ETFs, an investment headroom of 20% of the average AUM in Overseas securities/ Overseas ETFs of the previous three calendar months would be available to the Mutual Fund for that month to invest in Overseas securities/ Overseas ETFs subject to maximum limits. Further, Mutual Funds shall report the utilisation of overseas investment limits on monthly basis, within 10 days from end of each month.

For those investors who have yet not diversified across geographies, this move by SEBI should help them in the long run.