In its midterm monetary policy review, the Reserve Bank of India [Get Quote] has brought in three measures that directly affect individual investors. Here's a synopsis of the same.

Liberalised remittance scheme of $25,000 for resident individuals. Limit now raised to $50,000 per calendar year

The RBI has announced that resident individuals would be allowed to remit up to $50,000 per financial year (increased from $25,000) for any current or capital account transactions or a combination of both.

Which means resident individuals are free to buy property or shares or any other asset outside India without prior approval of the RBI. Individuals can also open, maintain and hold foreign currency accounts with a bank outside India without prior approval of the RBI.

Simultaneously, another change has been brought in. Earlier, residents could remit $5,000 per annum abroad as gifts and donations. Now, the $50,000 would be inclusive of this. In other words, $10,000 representing the allowable limit for gifts and donations respectively will no longer exist and there will be one single limit of $50,000 per annum, per person for gifts, donations and investments.

At the time of writing this, it is not clear if the $5,000 limit for gifts and donations individually has been maintained within the $50,000 limit or not.

In any case, the facility of being able to invest abroad is not new. RBI had already allowed residents to invest abroad vide A.P (DIR Series) Circular No.64 dated 4^th February 2004.

However, since then, no such product is available in the market. Actually, banks and fund houses initially did solicit deposits under the scheme. Several advertisements appeared offering foreign currency deposits/funds to be placed at overseas centres.

However, a press release issued by the RBI went on to state that these advertisements did not contain appropriate disclosures to guide potential depositors. Marketing in India of schemes offered by foreign entities, not having operational presence in India also raised supervisory concerns.

It was therefore decided in public interest that no entity other than a licensed banking company could solicit foreign currency deposits from residents. Further, all banks, both Indian and foreign including those not having an operational presence in India had to seek prior approval from RBI for any foreign investment schemes. There was a long list of disclosures that such offerings had to provide.

This has scared off any such offers. Unless any streamlined procedures and specific guidelines for such schemes are laid down by the regulator, the $50,000 scheme would be all bark and no bite.

That being said, it must be noted that though a bank or a fund house is expected to take RBI permission, a resident individual's right is in no way restricted from availing of the scheme. In other words, you as an investor can very well approach an authorised dealer and request remittance of the funds in an off-shore deposit or a mutual fund or a stock of your choice. And the AD will have to comply.

But, the story does not end here. Foreign markets too have their own regulatory and permission mechanism in place. Therefore, before deciding upon an investment, (though India's RBI allows you), you will have to determine whether you are eligible to invest in that market as per the rules and regulations of that country. If you are, $50,000 per year is there for the asking.

In the meanwhile, if any authorised dealer/bank does indeed offers a product of this kind, or can throw some more light on this matter, please feel free to write in.

Ten-year lock-in scrapped

No one is born an NRI (non-resident Indian). Instead residents who go abroad for employment or business become NRIs by virtue of staying abroad. And they leave behind some assets -- for example, house.

Now, as per FEMA (Foreign Exchange Management Act) rules, NRIs who owned a house in India bought from their rupee funds when they were residents were allowed to sell it and remit the sale proceeds abroad after paying capital gains tax of course.

There were only two conditions. First, the limit was up to one million dollars per year. The second was a ten-year lock-in enforced on the sale of such property.

The first condition was not all that restrictive. One million dollars is after all a huge sum of money. And those Richie Riches who had houses worth more, either didn't need the money abroad or could always remit in installments as the million-dollar limit is per annum.

However, for others, having to wait for ten long years to avail of the money was unfair and perhaps even unreasonable. Unreasonable because, there was no lock-in period imposed for properties bought using foreign exchange funds from the NRE account.

However, now, the ten-year lock-in rule has also been scrapped and NRIs are free to sell their property that they may have purchased when they were residents any time they desire without any lock in.

Overseas investment by mutual funds: Ceiling enhanced

The ceiling of overseas investment by mutual funds of $2 billion has enhanced to $3 billion with a view to providing greater opportunity to mutual funds to invest overseas. Though currently, it's the Indian stock market that is blazing and is on the world radar, over time and in the interest of diversification, this move does have potential.

Especially, in the absence of tailor made products available to residents under the $50,000 scheme, one would surmise that the mutual fund route is the best course for investors to take exposure in overseas stocks. Now, lets see if our mutual funds bite the bait.

The writer, Sandeep Shanbhag, is director at A N Shanbhag NR Group. He may be contacted at sandeep.shanbhag@moneycontrol.com

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