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Most of the fund houses have welcomed the Budget announcement allowing foreign retail investors to buy Indian mutual funds.
“To liberalise the portfolio investment route, it has been decided to permit SEBI registered Mutual Funds to accept subscriptions from foreign investors who meet the KYC requirements for equity schemes.
“This would enable Indian mutual funds to have direct access to foreign investors and widen the class of foreign investors in Indian equity market,” said the Finance Minister Mr Pranab Mukherjee in his Budget speech. This would not only widen the mutual fund investor base in the country, but would also improve the quality of investors.
Since foreign investors have a better understanding of mutual funds as a product, they would most likely be long-term investors, say analysts.
“Global investors are asset allocation-oriented as things are more developed overseas. They will be more strategy-oriented than absolute-returns oriented which is the case in India,” said Mr K Ramanathan, Chief Investment Officer, ING Investment Management.
At present, SEBI-registered foreign institutional investors are participants in the Indian mutual fund industry, but form only a small part of it. What the Budget decision has facilitated is the entry of the foreign retail investors into the Indian mutual fund industry.
No clarity
The broader processes need to be streamlined and there is still no clarity on the cap on such investment (if there is one), however, most fund houses are optimistic about the decision. “Allowing investment by foreign investors into schemes of SEBI registered Mutual Fund schemes is a welcome step. However, dovetailing the tax and regulatory parameters of these schemes to the requirements of multiple jurisdictions can be quite a challenge,” said Mr Piyush Surana, CEO, Daiwa Asset Management (India).
Varied products
According to fund managers, participation by foreign retail investors would see varied products entering the market, especially those on the equity side. The most popular products among foreign investors are global offshore funds or fund of funds. “Participation by foreign retail investors would bring in more variety of equity funds into the Indian markets, other than ETFs and large-cap funds which are the preferred investment vehicle of foreign institutional investors,” added Mr Ramanathan.
Fund houses with international distribution stand to gain most from this decision, as they already have a platform which would facilitate easier sale of their products. The only concern that fund houses have is in regard with Know-Your-Customer compliance, which in India is handled by Central Depository Services Ltd. “SEBI will have to form guidelines for the KYC processes of these foreign investors. This is a big opportunity for fund houses, but it all depends on how it gets played out in the market,” said Mr Vijai Mantri, Managing Director & CEO, Pramerica Asset Managers.
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