Asset management companies will now be allowed to spend $7 billion overseas, with the Reserve Bank of India relaxing norms relating to overseas investment by mutual funds. The move is in line with the central bank’s stated rule of hopeful flow of money outside the country.

The regulator also feels that the move will enable MFs to have greater opportunities for investment abroad. The existing capability allowing a limited number of qualified Indian Mutual Funds to invest cumulatively up to $1 billion in overseas Exchange Traded Funds shall remain unchanged, RBI said.

The move will not have any major implications immediately, as Indian mutual funds have invested only around $1.5 billion in overseas markets so far. According to information on the Value research website, eight MF schemes manage around Rs 6,000 crore ($ 1.5 billion) as assets in schemes that are mandated to invest overseas.

The largest among these is DSP World Gold Fund that has assets under management of over Rs 1,760 crore. Other large fund schemes are managed by Birla Sun Life, ICICI-Prudential and Tata AMC. Fund managers say that with the ceiling on overseas investments increased, investors will now be able to place their spawn in different baskets, thus being able to diversify their portfolio.

This will also show towards fuller capital account convertibility, they add. On an average, funds that invest overseas are delivering better returns that return solely in India, over the past year.

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