The Reserve Bank of India on Thursday raised the overall limit for overseas investment by domestic mutual funds from $5 billion to $7 billion.

While the central bank said in a late evening statement that the decision was taken "with a view to providing greater opportunity for investment overseas", the move is also being viewed as an effort to enhance outflows at a time when foreign capital flows could rise in the coming weeks.

The mutual fund industry appeared a little surprised by the sudden move since even the existing limit was not being utilised. Industry estimates peg the amount invested overseas at $1 billion to $2 billion. Only last September, RBI had raised the overseas investment limit for mutual funds from $4 billion to $5 billion.

In its statement on Thursday, RBI said the overall ceiling for investment in overseas exchange-traded funds will continue to be at $1 billion.

"We did not demand the raising of the limit to invest overseas, but there was always an understanding that the limit would not be a constraint. People have to understand what investing overseas entails, but we have made some progress," said A P Kurien, Chairman, Association of Mutual Funds in India (Amfi).

At present, there are about 17 schemes that invest overseas, which include equity and debt. At present, the individual investment limit per fund house is $300 million.

"The appetite for global investment from Indian investors is slowly increasing, but coming days may see more steps to allow domestic investors to have greater asset allocation overseas. Currently, the utilisation is significantly lower than $ 5 billion," said Sandesh Kirkire, Chief Executive Officer, Kotak Mahindra Mutual Fund. So far, the fund house has invested $120-125 million in global markets.

Similarly, Birla Sun Life Mutual Fund has invested just over $150 million overseas.