The Securities and Exchange Board of India (“SEBI”) vide circular SEBI/HO/IMD/DF3/CIR/P/2020/225 dated November 5, 2020 (“November Circular”) has enhanced the overseas investment limits for mutual funds. The November Circular has partially modified clause 1(b) of SEBI Circular SEBI/IMD/CIR No. 7/104753/07 dated September 26, 2007 (“2007 Circular”) and clause 2 of SEBI Circular SEBI/IMD/CIR No. 2/122577/08 dated April 8, 2008 (“2008 Circular”). The key changes introduced by the November Circular are as follows:

i) 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.

ii) Mutual funds can make investments in overseas Exchange Traded Funds (“ETFs”) subject to a maximum of US$ 200 million per mutual fund within the overall industry limit of US$ 1 billion.

iii) The allocation methodology of the aforementioned limits shall be as follows:

a) In case of overseas investments specified in (i), US$ 50 million would be reserved for each mutual fund individually, within the overall industry limit of US$ 7 billion.

b) Mutual funds launching new schemes or New Fund Offers (“NFOs”) intending to invest in overseas securities/ overseas ETFs shall ensure that the scheme documents disclose the intended amount that they plan to invest in overseas securities/ overseas ETFs subject to the maximum limits specified in (i) and (ii) as the case maybe. The limits disclosed in the scheme documents will be valid for a period of 6 (six) months from the date of closure of the NFO. The underutilized 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. Further investments must follow the norms for ongoing schemes.

iv) For all ongoing schemes that invest or are allowed to invest in overseas securities/ overseas ETFs, an investment headroom of 20% (twenty percent) of the average assets under management in overseas securities/ overseas ETFs of the previous 3 (three) calendar months would be available to the mutual fund for that month to invest in overseas securities/ overseas ETFs subject to the maximum limits specified in (i) and (ii), as the case maybe.

v) Mutual funds shall report the utilization of overseas investment limits on a monthly basis within 10 (ten) days from the end of each month. The format for reporting is enclosed in Annexure A of the November Circular.

The other conditions specified for overseas investments by mutual funds in the 2007 Circular and the 2008 Circular shall remain unchanged. The November Circular will come into force with immediate effect.

Please find a copy of the November Circular here, a copy of the 2007 Circular here and a copy of the 2008 Circular here.

This update has been contributed by Adity Chaudhury (Partner) and Rongeet Poddar (Associate).