Investments by Indian mutual funds in foreign securities were put on hold on February 1, 2022, when it reached the limit of $7 billion.
This limit was set in 2008. On August 2, India’s foreign exchange reserves reached a record high of $675 billion. It was $634 billion on January 28, 2022. The question is, will the RBI increase the limit of mutual funds’ investment abroad after the foreign exchange reserves reach a record high?
At present mutual funds have invested Rs 75,000 crore abroad
Currently, Indian mutual funds have an investment of about Rs 75,000 crore in foreign funds of funds, direct equities, international ETFs and domestic equity schemes. Recently, Reserve Bank of India (RBI) Governor Shaktikanta Das mentioned that the foreign exchange reserves have reached a record high. Due to this, it is expected that the central bank may increase the limit of investment abroad for the Indian mutual fund industry of Rs 64 lakh crore. Experts say that the value of rupee is also more or less stable against the dollar.
The attraction of investing abroad increased after the change in tax rules
Finance Minister Nirmala Sitharaman has relaxed the tax rules on investments in funds of funds abroad in the Union Budget presented last month. Accordingly, a 12.5 per cent tax was announced on long-term capital gains (after 24 months) in funds of funds abroad. The government had announced a marginal tax rate on this in Budget 2023. Capital League partner Rajul Kothari said that this is the right time for the RBI to increase the limit of investment in international funds.
RBI can increase the limit due to these reasons
Pankaj Pathak, Senior Fund Manager of Quantum AMC, also believes that RBI should now relax the rules for domestic mutual funds interested in investing abroad. Currently, the financial health of the Indian economy is good. The current account deficit has come down to below 1 percent of GDP. There is good institutional investment from abroad. Foreign exchange reserves have reached a record high. The value of rupee against the dollar is more or less stable.
