The Securities and Exchange Board of India (Sebi) on Thursday hiked individual limits of mutual funds' investments in overseas equity instruments by $50 million to $150 million.

The hike follows recent Reserve Bank of India (RBI) decision to hike overall investments by mutual funds in ADR, GDR, overseas exchange traded funds (ETFs) and other foreign securities to $3 billion from $2 billion in November last year.

A notification issued on Thursday by Sebi said, "The mutual funds can invest in ADRs/GDRs/Foreign Securities within overall limit of $3 billion. This will be a with a sub-ceiling for individual mutual funds, which should not exceed 10 per cent of the net assets managed by them as on March 31 of each relevant year and subject to a maximum of $150 million per mutual fund."

In November, the Reserve Bank of India had relaxed the earlier $2 billion ceiling on total overseas investments by the mutual funds to $ three billion.

RBI also eased the 10 per cent reciprocal shareholding norms, which restricted the funds to invest into the companies those have 10 per cent stake in Indian companies.

At present, fund houses life UTI, HSBC and Pru-ICICI have sought Sebi nod to launch funds which would invest in overseas markets, while Principal PNB and Franklin Templeton have existing schemes that invest in overseas markets.

Norms for ETF gold valuation

Sebi has amended Mutual Fund Regulations 1996 to make way for valuation of gold by gold-exchange traded funds. It also amended norms pertaining to trustees, as per information posted on the regulator's website on Thursday.

According to the market regulator, gold exchange traded funds should value gold at the AM fixing price of London Bullion Market Association in U.S. dollar a troy ounce for gold having a fineness of 995.0 parts per thousand., subject to the following: adjustment for conversion to metric measures as per standard conversion rates, and adjustment for conversion of US dollar into Indian rupees as per the RBI reference rate declared by the Foreign Exchange Dealers Association of India.

Transportation cost and customs duty that would be incurred in importing gold would also be added to derive the final price, the SEBI said.

Further, if the gold acquired by the gold exchange-traded fund is not in the form of standard bars, it shall be assayed and converted into standard bars, which comply with the good delivery norms of the London Bullion Market Association, the capital market regulator said.

Benchmark Mutual Fund was the first to seek the regulator's approval to launch exchange-traded gold fund. UTI Mutual, the country's largest mutual fund, has also sought regulatory nod for gold ETF.

Fund houses are yet to sort out custodian aspects of exchange-traded gold funds and ways of storing physical gold.

As per Securities Exchange Board Of India (Custodian Of Securities) (Second Amendment) Regulations, 2006, only banks that are registered with SEBI can act as custodian for gold funds.

On Tuesday, Kotak Mahindra Mutual also sought regulatory approval for gold fund. The fund house is in the process of finalising either Standard Chartered Bank or Deutsche Bank AG as custodian.

In April, Sebi has issued guidelines on valuation, computation of net asset value, benchmark index, and recurring expenses for gold exchange traded funds.

Sebi also said that no person who currently is a trustee of one mutual fund an act as a trustee of any other mutual fund.

The exiting norms allowed an independent trustee of a mutual fund to act as an independent trustee of other mutual funds. An asset management company director (except chairman) can also act as a trustee of other mutual funds.

Sebi has given three months time for fund houses to comply with the trustee norms. In November, Sebi had invited funds views on these proposed trustee norms.