The cap on overseas investments by individual mutual funds is likely to be removed.
A finance ministry official said on Wednesday that the government and the Reserve Bank of India (RBI) have decided to do away with the ceiling.
Currently, Indian mutual funds are allowed to invest up to $200 million or 10 per cent of their total assets under management (AUM), whichever is higher, in foreign markets.
Officials, who did not wish to be identified, said the Securities Exchange Board of India (SEBI) is expected to make a formal announcement shortly.
The Reserve Bank on Tuesday announced a slew of measures, including raising the overseas investment limit to $5 billion by all mutual funds in India.
"The aggregate ceiling for overseas investments by mutual funds, registered with SEBI, is being increased from $4 billion to $5 billion. In addition, the existing facility of investing up to $1 billion in overseas exchange traded funds, as may be permitted by SEBI by a limited number of qualified Indian mutual funds, would continue," RBI said.
The apex bank and the government have been grappling to work out the contours of a foreign exchange management policy in the wake of an appreciating rupee, which has risen to 9-year high levels in recent days.
The RBI said that it has been decided to accelerate the implementation of the third phase of the recommendations of the committee on fuller capital account convertibility.
It may, however, be interesting to note the extent to which Indian asset management companies invest in overseas bourses, particularly at a time when foreign funds are clamouring to invest in Indian capital markets.
Industry analysts said that no Indian mutual fund has as yet hit the overseas investment ceiling of $200 million.