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Only Indian mutual funds that have a global platform or a tie up with a global MF will be able to rope in foreign investors, say industry experts.
The government on Monday permitted foreign investors to invest in Indian equity through the MF route provided they meet the KYC norms. This would enable Indian mutual funds to have direct access to foreign investors and widen the class of foreign investors in the Indian equity market, said the Finance Minister, Mr Pranab Mukherjee, in his budget speech.
Though the move has been welcomed by the mutual fund industry there are issues that need to be addressed they say. “This is a directionally superb step but we need to wait for the regulatory fine print to unfold,” said Mr Sunil Singhania, Head –Equities Reliance Mutual Fund.
Taxation challenges
“It is a question of how effective we are as an industry in tapping these investors,” said Mr Naval Bir Kumar, MD &CEO, IDFC Mutual Fund. “Foreign investors being internet savvy can be easily served using the online route, provided the process is made simple and all information about products are available online,” he added.
The two most important issues are KYC norms and the taxation foreigners would be subjected to while repatriating profits back home.
“Challenges of KYC, taxation, and currency risk notwithstanding foreign investors are sure to invest in India if they see efficiency in execution and better quality of fund management and diversification in comparison to other markets,” said Mr Kumar. “These products would compete against India-focused funds (both rupee and dollar denominated) and ETFs,” he said.
The Budget announcement also addresses the issue of the small foreign investor who does not have the wherewithal to open or to be a part of an FII sub-account. Fund houses that have their own global technology platform or have a tie up with a global fund house with such a platform have an advantage because their products can be enlisted and sold through these platforms. It is interesting to note that at least a fifth of India's fund houses are global by themselves and a few more have global tie-ups.
As on date, only FIIs, their SEBI registered sub-accounts and NRIs are allowed to invest in mutual fund schemes.
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