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Sunday, May 02, 2004

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MFs send feelers to regulator for floating `feeders'

Veena Venugopal

Mumbai , May 1

THE domestic mutual funds have sought the Securities and Exchange Board of India (SEBI) permission to float `feeder' funds to help domestic investors to invest in global funds.

This is to take advantage of the scheme announced recently by the Government under which Indian residents can invest up to $25,000 overseas a year.

A committee of the Association of Mutual Funds in India (AMFI) headed by Mr Alok Vajpeyi, Chief Executive Officer, DSP Merrill Lynch Mutual Fund, has made its recommendations to SEBI to allow fund houses to introduce "feeder" funds in India. The committee has also made recommendations on the process of authorisation for direct selling of international funds by their Indian operations.

While some fund houses have tabled products for SEBI's clearance, others have asked fund managers to analyse global funds and present various combinations of portfolios and their corresponding returns. These combinations would then be offered to retail investors through "feeder" funds.

"Feeder" funds would act as a "fund of funds" and would invest in a portfolio of global funds. This route is being taken by the domestic mutual funds as they are mandated only to "advice or manage money" for their clients and are not allowed to be in the business of "distribution of overseas funds directly."

"We have taken two approaches for investments in international funds. In case of a feeder fund, the fund would be managed in India and hence regulated by the Indian investment norms. In case fund houses want to market their international funds in India, they would have to approach SEBI and get an authorisation that would allow that particular fund to be distributed in India," said Mr A.P. Kurien, Chairman, AMFI.

However, industry insiders reveal that the "feeder fund" would be too complicated to be managed well. "If it is a fund of all international funds, how would currency arbitrage take place? The recommendations do not answer many related questions," said an industry participant.

Most fund houses agree that investment possibilities for the $25000 would only be utilised by fund houses that are backed by international banks such as HSBC, Standard Chartered etc. "They would probably club some of these options along with domestic options for High Net Worth individuals. The ordinary investor would find these too complex and risky to be a viable investment option," said the Chief Executive Officer of an asset management company.

Corporate distributors reveal that they are being trained by some fund houses to understand and advice clients on global investments. "We have been told by some of our principals that the products would be launched in less than 60 days' time," said Mr Sanjiv Roy, Chief Executive Officer, Birla Sunlife Distribution Services.

The AMFI recommendations have been presented to SEBI. "SEBI is yet to call a meeting to discuss the report, but we are confident that the guideline would be issued soon," said Mr Kurien.

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