Sebi doubles overseas exposure limit for mutual fund houses to USD 600 millon

NEW DELHI:  Indian mutual fund investors will now have a greater opportunity to derive the potential benefits, and risks, from exposure to the international markets.

Last week, the Securities and Exchanges Board of India (Sebi) tweaked regulations for mutual funds and doubled their individual foreign exposure limit from $300 million to $600 million.

This is the first time in over a decade that this limit has been changed and it allows mutual funds to allocate a far higher share of their corpus in foreign securities. 

The move is a response to several requests from the mutual fund industry and the sharp rise in foreign assets under management (AUM). According to industry executives, several of India’s 44 mutual funds had begun pushing the earlier individual foreign investment limit of $300 million.

“The increase will allow fund houses to allocate a wider share of potential resources in international opportunities,” said an senior executive at a mutual fund house, adding that while more exposure to global markets may come with its own risks, a wider array of opportunities would generally help fund houses manage risk better by hedging and protect returns. 

The regulator, however, has also put in place a measure to prevent a sudden surge in foreign investments. According to the new guidelines, existing MF schemes have a headroom of 20 per cent of their AUM over the past three months for foreign investments.

“This will be subject to the overall $600 million limit. It is a way to ensure that smaller funds don’t increase their foreign exposure to risky levels,” said another MF executive. 

While each individual MF can make up to $600 million foreign investment, the entire industry itself has been capped at a foreign investment limit of $7 billion.

In order to ensure no MF is pushed out of the opportunity to invest in foreign securities, SEBI has also reserved a space of $50 million foreign assets for each fund house. Mutual funds can invest $200 million in overseas overall industry limit of $1 billion.

A mutual fund which is launching a New Fund Offer and intends to invest overseas will now be required to specify the amount it will invest outside India and do it within six months.