The Hindu Business Line : Extend tax breaks to investments abroad: AMFI chief

Kochi June 4 One of the primary reasons why Indian mutual funds and retail investors are still not investing heavily in capital markets abroad is because these investments do not enjoy the tax breaks that are available to investments in Indian companies.

"Despite the liberalisation and globalisation of the economy, it is still mandatory for Indian mutual funds and asset management companies to invest up to 65 per cent of their assets in Indian companies to enjoy the benefits of dividend and capital gains tax-breaks," Mr A.P. Kurian, Chairman of the Association of Mutual Funds in India (AMFI), said.

AMFI has now given a proposal to SEBI and Government of India, which could enable 100 per cent foreign investments by mutual funds and retail investors to enjoy similar tax-breaks.

This is the prime reason why the recent announcement by the Government enhancing the foreign investment limits from $3 billion to $4 billion and individual fund limit from $150 million to $200 million in foreign capital markets did not elicit much response.

Just three players, Principal, Franklin Templeton and Fidelity are currently investing in companies abroad.

However given the 35 per cent returns enjoyed last year, it was not mandatory for Indian funds to invest abroad.

But there is the need to diversify the investments risks further, and also the competing rewards from markets such as China and Vietnam that offer good returns, Mr Kurian pointed out.

Similarly, the announcement revising the limit for Indians investing in the equities of companies abroad to $100,000 also did not elicit major response.

This was not only because of the robust returns from the Indian markets, but also since most of the high net worth individuals do not have the facility or the wherewithal to invest in these foreign markets. In order to utilise this enhanced facility,

Working on new schemes

AMFI was thinking of creating new schemes for mutual funds, which will provide custom-built investment solutions for high net worth resident Indians to invest abroad. Discussions with SEBI and the government are progressing in this regard.

Conceding that Gold Exchange Traded Fund has had a slow take-off, Mr Kurain said it is good scheme in a country like India where substantial numbers of people still see it as the final repository of their wealth.

But safekeeping the gold has always been a problem. So has the quality of the gold, its price and the lump-sum purchases that Indians make in gold? All these can be effectively overcome through the Gold Exchange Traded Fund through periodic investments in small quantities, which can be recouped in gold on maturity, Mr Kurian said.

He said that the retail investor is still cut off from the boom in real estates. The final guidelines on real estate mutual funds are expected before the end of the year.

"The real estate Mutual Funds are expected to invest in real estate companies, the debentures/bonds of these companies, its mortgage backed securities and its securities paper. This will enable the common man to participate in country's real estate boom," Mr Kurian said.

The mutual fund industry has taken effective steps to reach out to the retail sector and has opened 80 lakh accounts in 2006-07 through 1,300 outlets.

The funds today manage 30 million accounts with a corpus of Rs 3,57,000 crore. Over an above the 35 per cent returns last year, the industry expects to grow by 40 per cent this year.

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