The Reserve Bank of India ("RBI") had on 8th May 2007 enhanced the ceiling on investments by Mutual Funds registered with the Securities and Exchange Board of India ("SEBI") from the existent limit of USD 3 billion to USD 4 billion.

To enhance the prospects for overseas investments by SEBI registered mutual funds, RBI has by its circular dated 26th September 2007 further increased the aggregate ceiling for overseas investment by SEBI registered Mutual Funds. Accordingly, SEBI registered Mutual Funds are now permitted to invest overseas subject to a cap of USD 5 billion as against the existing cap of USD 4 billion.

Presently, SEBI registered Mutual Funds are permitted to undertake invest in:

  • equity of overseas companies listed on recognized stock exchanges overseas

  • rated debt instruments not below investment grade by accredited/registered credit rating agencies

  • American Depository Receipts (ADRs) / Global Depository Receipts (GDRs) of Indian and foreign companies

  • overseas exchange traded funds investing in securities

  • overseas mutual funds making nominal investments in unlisted overseas securities

To provide Mutual Funds access to a larger investment stock overseas, RBI has now allowed Mutual Funds to invest in the following, subject to SEBI guidelines issued in this regard:

  • derivatives traded on recognized stock exchanges overseas for hedging and portfolio balancing

  • initial and follow on public offerings for listing on recognized stock exchanges overseas

  • foreign debt securities in countries with fully convertible currencies, short and long term debt instruments with rating not below investment grade by accredited/registered credit rating agencies

  • units / securities issued by overseas Mutual Funds or Unit Trusts registered with overseas regulators and investing in real estate investment trusts listed on recognized stock exchanges overseas.

  • short term deposits with banks overseas where the issuer is rated above investment grade

  • money market instruments rated above investment grade

  • government securities where the countries are rated above investment grade

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.