Alternative Investment Funds (AIFs) in India have become a popular route for high-net-worth individuals (HNIs) and institutions seeking diversified and high-growth opportunities. They enable investors to access asset classes beyond traditional mutual funds, including private equity, venture capital, infrastructure, and offshore markets.
As global opportunities expand, the overseas investment limits for AIFs have drawn attention from both fund managers and investors. SEBI refined its framework in 2025 to enhance transparency, maintain compliance, and promote cross-border capital flows.
Current Framework: The 25% Cap Rule
Under the existing SEBI regulations, AIFs in India can invest abroad, but only within defined boundaries. Each AIF can invest up to 25% of its investible funds in overseas assets.
So, if a fund manages ₹100 crore, it can invest up to ₹25 crore in international markets. This cap applies to all categories, including Category I, II, and III AIFs. The rule ensures funds maintain a balanced domestic exposure while diversifying globally.
In addition, SEBI and the Reserve Bank of India (RBI) have set a combined industry-wide ceiling of USD 1,500 million for overseas investments by all AIFs and Venture Capital Funds (VCFs) together.
Recent Developments in 2025
While the headline numbers remain the same, SEBI’s 2025 circulars have introduced operational flexibility. The regulator has now:
- Streamlined the approval process for AIFs seeking overseas exposure.
- Allowed reinvestment of sale proceeds from offshore investments, provided the total exposure stays within the 25% cap.
- Emphasised enhanced disclosures, requiring AIFs to report detailed information on asset type, country, valuation method, and expected returns.
These measures make it easier for AIFs to manage global portfolios and improve investor confidence through better reporting.
Impact on Different AIF Categories
Each AIF category faces distinct implications:
- Category I AIFs – These include venture capital and social venture funds. They can invest overseas in early-stage startups or socially impactful projects, provided that these investments align with the fund’s objectives.
- Category II AIFs – These are private equity and debt funds. They enjoy flexibility in offshore investments but must maintain SEBI approval and stay within the 25% limit.
- Category III AIFs – These hedge funds use complex trading strategies. They can invest abroad, but often face tighter scrutiny due to their leverage and derivatives exposure.
Why Are These Limits Important?
The goal behind SEBI’s limits is balance. India aims to promote global participation while protecting domestic capital flows. The USD 1.5 billion overall ceiling ensures foreign investments by AIFs don’t excessively drain domestic liquidity.
However, industry experts have pointed out that this limit may soon need to be revised. As of early 2024, nearly 90% of the quota has already been utilised, prompting SEBI to approach the RBI for a higher cap.
Strategic Considerations for Investors
- Diversification Advantage: Global markets offer different economic cycles. Investing abroad helps reduce portfolio risk and opens new growth corridors.
- Currency and Geopolitical Risks: Currency fluctuations can influence returns. Hence, funds often hedge exposure or choose stable markets like the US or Singapore.
- Regulatory Compliance: Following SEBI’s approval and disclosure rules is crucial. Any non-compliance could result in penalties and damage to reputation.
- Due Diligence and Transparency: Before investing, fund managers must assess the legal, tax, and economic framework of the foreign entity in which they are considering investment. Strong due diligence ensures smoother returns.
Conclusion: Why Choose Equentis Investech?
At Equentis Investech, we combine regulatory expertise with deep market insight. Our expertise guides you:
- Align AIF investments with global opportunities and comply with SEBI regulations.
- Managing overseas exposure strategically under the 25% limit.
- Track portfolio diversification using data-driven insights
- Maintain transparency and compliance through ongoing reporting.
Global investing should be smart, compliant, and profitable.
With Equentis Investech, you don’t just invest abroad, you invest wisely.
