Most fund houses have issued addendums stating that they will not accept fresh subscriptions from these investors. Fund houses have to make several disclosures under Fatca to the US tax authorities, which will lead to increased compliance costs. So, the AMCs have decided to stop taking fresh subscriptions, said Anutosh Bose, COO, LIC Nomura MF.
According to estimates, about 1-2% of the existing industry AUM of Rs 10 lakh crore comes from Canada and US-based investors. Indian AMCs have to register with the US SEC in order to market their funds in the US and follow SEC regulations to take fresh investments from the US citizens. After Fatca, any resident having a US address with an Indian AMC and having investments in India has to be reported to the US authorities.
The information disclosed may include the identity of the investors and their direct or indirect beneficiaries, beneficial owners and controlling persons. Fatca came into effect on July 1 globally, but is expected to be implemented in India next year. Amfi has roped in consulting firm KPMG to help fund houses comply with the Fatca requirements.
As per an addendum uploaded on a top Indian AMC's website, US and Canadian residents will not be permitted to make fresh purchases or additional purchases or switches in any of the schemes of the mutual fund with effect from July 21, 2014. Also existing investors taking up US or Canada citizenship will not be permitted to make fresh purchases. However, existing unit holders will be permitted to redeem units from any of the schemes of the mutual fund.
Fatca is a US Federal law to increase compliance by US taxpayers and is intended to bolster efforts to prevent tax evasion by the US taxpayers with offshore investments. In accordance with FATCA provisions, the AMC or Mutual Fund is required to undertake due diligence process and identify US reportable accounts and disclose such information to the US Internal Revenue Service (IRS) or the Indian Tax Authorities, as the case may be.
As per Fatca, the AMC or fund is likely to be classified as a Foreign Financial Institution.