The industry has welcomed the RBI decision to ease the overseas investment norms as a "progressive step forward" that would provide an opportunity to expand the investors' portfolio beyond the boundaries and reduce the volatility-related risk factors associated with a single market.
"This is a positive and welcome step for Indian investors to invest abroad," A P Kurien, chairman, AMFI told PTI. Though RBI's relaxation is an initial step towards launch of schemes by domestic mutual funds in overseas markets, as funds have to wait for SEBI guidelines to launch their schemes," he said.
Reserve Bank of India announced liberalised norms on Thursday, which raises the aggregate ceiling for overseas investment by the funds to $2 billion, from $1 billion previously.
RBI has also removed the previous requirement that MFs can invest in overseas securities of only those foreign companies, which have a 10 per cent stake in an Indian company listed in India.
The changes were first proposed by Finance Minister P Chidambaram in his budget speech earlier this year.
"This is a progressive steps for mutual funds by the government and MFs should utilise the opportunities being provided to them," Dhirendra Kumar, CEO of mutual fund research firm, Value Research said.
Investing in stocks overseas helps investors capitalise on areas that are not adequately represented in the Indian markets.
Oil marketing companies here, for instance, are not a good proxy for crude oil prices because of the artificial restraints on their pricing.
As investments in overseas market provides an alternative for the mutual funds and can target specific overseas markets like a fund dedicated to American or Taiwanese stocks or a diversified fund that invests in the entire universe of stocks listed outside India.
Earlier, MFs were permitted to invest in ADRs/GDRs of Indian companies, rated debt instruments and equity of overseas companies listed on a recognised stock exchange abroad and having a shareholding of at least 10 per cent in a listed Indian company.