The cap applicable on fund houses for investing in overseas instruments may soon go, provided the investments by retail investors is routed through a dedicated overseas fund.
Fund houses such as Fidelity, Franklin Templeton and Principal that currently allow retail investors to invest abroad are subject to individual ceilings of $150 million across all schemes.
However, mutual funds may now be able to offer investment options to retail investors through a fund dedicated to investing abroad. Such a fund may not be subject to the $150-million ceiling as long as it is strictly restricted to overseas instruments (both debt and equity) only.
While the overall cap of $4 billion for the mutual fund industry will continue, these dedicated funds may not be subject to this annual ceiling. Suppose a mutual fund offers a scheme to its investors wherein 65% of the total assets under management (AUM) under the scheme is invested in domestic equities while 35% of the scheme’s AUM is invested overseas.
Then under the current regulations such a fund will be allowed to invest upto 10% of its total AUM (across all schemes) in overseas equities as on March 31 of the relevant year subject to a maximum of $150 million and within the overall $4-billion ceiling.
However, if the fund house floats a separate dedicated fund, both the restrictions may not apply.
The government is working out guidelines for these dedicated funds as well as for individuals who will invest in these funds.
“The idea is to provide retail investors a platform to utilise their limits for making overseas investments. However, since no ceiling may be prescribed for these dedicated funds, there has to be a reporting mechanism to ensure that individuals are not breaching their limit of $1,00,000 while investing through these fund houses,” an official said.
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