The Hindu Business Line : MFs' overseas investment norms eased

Relaxed rules
Investment ceiling raised from $1b to $2b
Select MFs allowed to invest in ETFs cumulatively for $1 b
10% shareholding criterion in listed Indian co has been dispensed with

Mumbai , July 27

The Reserve Bank of India has raised the ceiling for overseas investment by mutual funds from $1 billion to $2 billion.

Select mutual funds would also be allowed to invest in exchange traded funds cumulatively for $1 billion, permitted by the Securities and Exchange Board of India, an RBI notification said.

Mutual funds will now be able to invest in a broader horizon overseas, as the requirement for investing only in companies overseas that have 10 per cent share holding in listed Indian companies has been dispensed with.

Detailed guidelines for implementation of the announcement including eligibility criteria, limits, identification of recognised stock exchanges, investible universe, monitoring of aggregate ceilings etc would be issued by SEBI.

However, mutual fund houses such as Principal PNB, which have an existing overseas fund, are awaiting complete SEBI guidelines till they plan their next course of action. Mr Rajat Jain, Chief Investment Officer, Principal PNB Asset Management Company, said, "This is a good step by the regulator, but till the guidelines are issued, nothing much changes. However, the removal of restrictions on investing in companies overseas will provide a diversified investment pattern in the best overseas companies abroad." The net asset value of Principal Global equity fund, which was established in 2004, is currently at 12.92.

"Anything that helps broaden the markets and helps avail oneself of good opportunities is welcome," said Mr Naval Bir Kumar, Managing Director, Standard Chartered Asset Management Company Pvt Ltd, on the guidelines.

Mutual funds hitherto were allowed to invest in ADRs/GDRs of Indian companies, rated debt instruments and also in the equity of overseas companies listed on a recognised stock exchange overseas and having a shareholding of at least 10 per cent in a listed Indian company.

The announcement was done in accordance to the Finance Minster, Mr P. Chidambaram's budget speech earlier this year.

However, despite being allowed to raise $1 billion overseas, only two AMCs, Franklin Templeton and Principal PNB, issued overseas funds. The reasons were primarily that fund houses did not have a diversified range of companies to invest abroad. "Investment was restricted to 30-40 companies abroad and these companies were doing better in India. Hence, these funds were not very popular with Indian investors. However, the softening of regulations will be critical now," said Mr Sandesh Kirkire, Chief Executive Officer, Kotak Asset Management Co Ltd.

Another reason is the superior performance of Indian exchanges, which have almost doubled from 6,000 points to 12,000. Thus, there are many opportunities for Indian investors to earn good returns in the country itself, which is unavailable in most other countries.

As interests will now be generated in the field of investment overseas, managers feel that a proper vehicle is needed to channelise the fund outflow for issuing overseas funds.

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