SEBI has increased the overall limit for overseas investments by alternative investment funds and venture capital to $1,500 million (approximately 10,000 crore) on Friday. These funds can now invest up to $1,500 million in foreign markets. Previously, the cap was set at $750 million.

The decision has been taken in consultation with the Reserve Bank of India, the Securities and Exchange Board of India (Sebi) said in a circular.

“All other regulations governing such overseas investment by eligible AIFs/VCFs shall remain unchanged,” SEBI circular said.

According to experts, AIFs and VCFs will have greater access to overseas investment opportunities, as well as the potential for higher global returns.
“It shall better position AIFs and VCs to hedge their overall investment risk. AIFs and VCFs shall get the benefit of diversification and at the same time the investors shall be protected from fluctuations in returns due to concentrations of investments in a particular sector or economy,” says Prashaant Vikram Rajput, Partner, White & Brief Advocates and Solicitors.

Many large domestic brokers have registered AIFs and VCs that will benefit from the changes.

This move would allow greater Indian participation in global companies and would accelerate the growth of the Indian AIF industry overall, said 3one4 Capital founding partner Siddarth Pai.

Under the rules, AIFs and VCFs need to mandatorily disclose the utilisation of overseas investment limits within five working days of such usage on the market regulator's intermediary portal.

In case an AIF or venture capital fund (VCF) has not utilised the overseas limit granted them within 6 months from Sebi's approval, the same needs to be reported within two working days after the expiry of the validity period.

Further, if an AIF or VCF wishes to surrender the overseas limit at any point of time within the validity period, the same needs to be reported within two working days from the date of the decision to surrender the limit.

This is was subject to the condition that the overseas investments would need to have an Indian connection. Sebi had increased this to USD 750 million in 2018 but as the industry grew, the size of the previous allowance was becoming a bottleneck for Indian AIFs to invest overseas, with the allowance getting exhausted due to the sheer size of the industry and pace of investments.