A day after the Reserve Bank of India relaxed overseas investment norms to arrest the rising rupee, a senior government official said on Wednesday the cap on overseas investment by individual mutual funds will soon be lifted.

Currently, individual mutual funds can invest $200 million or 10 per cent of its assets under management overseas, whichever is higher.

"This cap would be done away with. The government and the RBI have agreed to remove the limit," the finance ministry official said.

Market regulator Securities and Exchange Board of India may issue an order removing the limit in two to three days, the official said.

On Tuesday, Reserve Bank raised the overseas investment limit by mutual funds to $5 billion from $4 billion earlier. Sources said as even $4-billion limit is not exhausted, there was no rationale in keeping the cap on individual mutual funds.

Dhirendra Kumar of mutual fund tracking company Value Research said no fund house has so far hit the limit of $200 million. However, the restriction could come in the way of the overall limit of $5 billion as some funds would like to invest beyond $200 million but others may not be interested in overseas investment at all, he said.

Kumar also demanded that the limit of $1billion on exchange traded fund should also be lifted as no company has gone for that route so far.