25 May 2021

Enhancement of overall limit for overseas investment by AIFs/VCs

SEBI (Securities and Exchange Board of India) issued Circular SEBI/HO/IMD/DF6/CIR/P/2021/565 dated 21 May 2021 to enhance the allowable limit for overseas investments by AIFs (Alternate Investment Funds) and VCFs (Venture Capital Funds). This circular is issued in exercise of powers conferred under Section 11(1) of the SEBI Act, 1992 implemented to protect the investor's interest in securities and to promote the development and regulation of the securities market.

The overall limit of registered AIFs and VCFs for overseas investment was defined in the following SEBI Circulars:

SEBI/VCF/CIR No. 1/98645/2007 dated 9 August 2007
CIR/IMD/DF/7/2015 dated 1 October 2015
SEBI/HO/IMD/DF1/CIR/P/2018/103/2018 dated 3 July 2018

SEBI has enhanced the existing limit in congruence with the RBI (Reserve Bank of India):

Existing Limit for registered AIFs and VCFs for overseas investment	Enhanced Limit announced via Circular SEBI/HO/IMD/DF6/CIR/P/2021/565
USD 750 million	USD 1500 million

The following has been further clarified:

All other regulations governing such overseas investment by eligible AIFs/VCFs shall remain unchanged.
All other requirements, terms and conditions specified in the above-mentioned SEBI circulars shall remain unchanged.

Our Comments
In 2015, SEBI put in place USD 500 Million allowance for overseas investment. Domestic AIFs were, however allowed to invest one-fourth of their corpus overseas. Further, overseas investments were required to have an Indian connection. In 2018, this allowance limit was raised to USD 750 Million. Now increasing the limit to USD 1500 Million will enable AIFs and VCFs whose current allowance is getting fulfilled to invest further. AIFs and VCFs have experienced rapid growth over the past five years. Such upward shifts in allowances will enable Indian AIFs to actively participate in global markets and avail equity investment opportunities in international startup companies.

Over the past five years, Portfolio Management Services (PMS) and AIFs have emerged as an alternative to mutual funds. Regulations have mandated that mutual funds should not hold more than 10% of the entire corpus of the fund in a single stock, but PMS and AIF have no such limitation owing to which they have created a better Alpha through concentrated portfolio building.

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