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Veena Venugopal

Mumbai , April 30

FOREIGN institutional investors (FIIs) are sniffing around Indian mutual funds to see if they can be used as channels for investing in the Indian market.

The primary motivation spurring this interest is that this would be a valid channel to increase their exposure to segments and scrips where FIIs have already reached maximum exposure limits.

The total investments by FIIs and sub-accounts in Indian companies are restricted by sectoral limits stipulated by the Government. When overall FII investments reach close to these levels, RBI gives a caution notice. Subsequently, all purchases have to be done with the prior approval of RBI.

This month alone, RBI has restricted FIIs from buying scrips like Mphasis BFL Software, Bharti Televentures, Oriental Bank of Commerce, Centurion Bank etc, as they have exceed the maximum allowable limit. FIIs investing in funds that have these scrips as part of their portfolio would be able to take some additional exposure in these scrips.

FIIs have been speaking to a handful of fund houses, majority of who are foreign-owned. Though investments of sizeable nature are yet to come in from this front, fund houses are getting themselves ready. Franklin Templeton Investment India, for instance, has waived all entry and exit loads to FIIs investing in the Templeton India Income Fund and Franklin India Bluechip Fund.

``Since there are no significant distribution and marketing costs such as brokerage, sales promotions associated with direct investments made by FIIs through their sub-accounts, hence no load, entry or exit, will be charged by the schemes on the direct investments made by such FIIs,'' states the addendum to the offer document of these schemes.

``This move reflects our long term view on the attractiveness of India as an investment destination, especially domestic mutual funds with an established track record over market cycles, for global institutions,'' said Mr Sukumar Rajah, Chief Investment Officer - Equity, Franklin Templeton.

Industry insiders reveal that FIIs who have not been active investors in the capital market are also interested in investing through mutual funds.

``The India story is gaining strength internationally.

FIIs who want to dip a toe in our capital markets are seeking to do so through mutual funds. Once they see returns coming in, they would perhaps then participate directly in the markets,'' stated a Vice-President - Marketing of a large asset management company (AMC).

While FIIs are conducting due diligence on only a few AMCs currently, if the investment model is proved to be viable, they would make larger investments as well as broaden the number of fund houses that they invest through, sources said.

More Stories on : Foreign Institutional Investors | Mutual Funds

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