RBI/2006-07/88
A.P. (DIR Series) Circular No. 3
July 26, 2006
To
All Category - I Authorised Dealer Banks
Madam/Sirs,
Investment by Mutual Funds in Overseas
Securities - Liberalisation of
Attention of Authorised Dealer
Category - I (AD) banks is invited to Regulation 6B and Regulation 26 of Notification
No.FEMA.120/RB-2004 dated 7th July 2004, as amended, from time to
time and AP (Dir Series) Circular No. 97 dated April 29, 2003.
2. As proposed by the Hon'ble
Finance Minister in his budget speech for the year 2006-07, overseas investments
by Mutual Funds registered with Securities and Exchange Board of India (SEBI)
have been liberalised by enhancing the existing aggregate ceiling and expanding
the avenues for investment. Presently, Mutual Funds, registered with SEBI, are
permitted to invest in ADRs/GDRs of Indian companies, rated debt instruments
and also in the equity of overseas companies listed on a recognised stock exchange
overseas and having a shareholding of at least ten percent in a listed Indian
company. To enable the Mutual Funds to tap a larger investible stock overseas,
the requirement of 10 percent reciprocal share holding in the listed Indian
companies by such overseas companies has been dispensed with.
3. The aggregate ceiling for
overseas investment by Mutual Funds, registered with SEBI, is increased
from USD 1 billion to USD 2 billion with immediate effect. It has also been
decided to allow a limited number of qualified Indian Mutual Funds to invest
cumulatively up to USD 1 billion in overseas Exchange Traded Funds as may be
permitted by the SEBI.
4. Detailed operational guidelines
for implementation of the budget announcement including eligibility criteria,
limits, identification of recognised stock exchanges, investible universe, monitoring
of aggregate ceilings etc. would be issued by SEBI.
5. Monthly reporting requirement
to the Reserve Bank as stipulated vide AP Dir (Series) Circular No. 96 dated
April 28, 2003 would continue for statistical purpose with some modification
in the table for Mutual Fund as in Annex –I.
6. Necessary amendments to the
Foreign Exchange Management (Transfer or Issue of Any Foreign Security) Regulations,
2004 will be issued separately.
7. AD banks may bring the contents
of this circular to the notice of their constituents and customers.
8. The directions contained
in this circular have been issued under Sections 10(4) and 11(1) of the Foreign
Exchange Management Act, 1999 (42 of 1999) and is without prejudice to permissions
/ approvals, if any, required under any other law.