The Hindu Business Line : Leeway for individual MFs likely

After providing greater leeway to the mutual fund industry on overseas investments, the Government is considering a major hike in the cap on overseas investment by individual fund houses. Indications are that the fresh cap could be set at about $100 million per fund house against the current ceiling of $50 million.

Senior Finance Ministry officials said that the new cap would be announced after discussions with the Reserve Bank of India and the SEBI.

They added that the higher ceiling was a fallout of the Government's decision to lift restrictions on the type of overseas companies in which investments can be made, while simultaneously raising the overall country cap for such investment from $1 billion to $2 billion.

The Finance Minister, Mr P. Chidambaram, had announced the measures in his Budget speech.

According to the officials, a higher cap on aggregate investment by mutual funds as well as greater freedom for individual fund houses were felt necessary as they would open up major investment opportunities for fund houses. Earlier, mutual funds were allowed to invest only in those companies listed overseas that had an Indian subsidiary and in which they had a minimum of 10 per cent shareholding.

The restriction, however, has been lifted in the Budget thereby allowing Indian mutual funds to invest in any company listed in stock exchanges abroad.

"Under the earlier norms, mutual funds could invest in about 43 overseas companies. Now there is complete freedom and we foresee a huge step-up in overseas investment by fund houses," the officials said.

The mutual fund industry had been pressing hard for several years for greater freedom to invest abroad on the plea that such a move would be in keeping with the spirit of globalisation.

Moreover, it was pointed out that there are several global mutual fund players in the Indian market, all with sufficient expertise in selecting the right stocks to invest in any capital market in the world.

More Stories on : Mutual Funds | Overseas Investments | Budget

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