New overseas norms could pose some hurdles for Indian MFs

Written by fe Bureau | Mumbai | Updated: Nov 22 2012, 08:21am hrs
The move by overseas regulators Canadian Securities Administrators, the securities market regulator of Canada, and UAEs Securities & Commodities Authority (SCA) to strengthen guidelines to protect local investors might create hurdles for Indian asset managers and distributors that cater to individual Indian investors in these countries.

Each regulator has its own approach. Mostly, the recent guidelines have been brought out with a view to protect the retail investors in these countries, said Sandesh Kirkire, CEO, Kotak Asset Management.

On the institutional side, Indian MFs play an advisory role to clients that want to invest in emerging market funds or India-dedicated funds in these countries, said experts. The fund houses also target individual investors, who could be non-resident Indians (NRIs) with a rupee account or non-NRIs.

The Canadian guidelines are directed at individual investors and will not impact the advisory business of Indian fund houses. Impact on NRIs will be minimal as they can continue to invest in Indian funds through their NRO accounts. However, the non-NRI portion will get impacted but the impact would not be too significant, said the CEO of a large fund house.

According to industry estimates, the total assets under management (AUM) of non-resident Indians (NRIs) managed by Indian fund houses would not be more than 7%.

In a recent addendum, Franklin Templeton Investments indicated that it would not sell its India-domiciled funds in Canada. Effective September 28, units of the schemes of Franklin Templeton Mutual Fund are not available for sale to persons residing in Canada. No applications for investment will be accepted from persons residing in Canada.

Further, all existing Systematic Investment Plans, Systematic Transfer Plans and Dividend Transfer Plans, registered in the Folio held by persons resident in Canada, will stand cancelled, said the note. Fund houses such as ICICI Prudential MF, UTI MF, Birla Sun Life Mutual and Kotak Asset Management are expected to be similarly impacted, said industry experts.

The Canadian regulator has initiated a registration process for investment managers who manage assets of local residents outside Canada. The SCA, on the other hand, has asked investment advisors as well as distributors to seek its nod before selling a product.

The UAE guidelines will hit distributors registered in the UAE as well as fund houses that have branches in the country, said the CEO of a small fund house. He added that Indian distributors might find it difficult to fall in line with the guidelines, which will include net worth criteria, record keeping and due diligence, among other things.

Most of the distributors currently operate on a mom-and-pop model and may have trouble fulfilling all the new guidelines. They might have to rejig their operations, said the CEO.

Bargeel Geojit Securities and Centrum are said to distribute MFs in UAE, while Kotak, ICICI, HDFC and Reliance are present through branches in the country.

Last month, market regulator Securities and Exchange Board of India (Sebi) had said that it would take up the issue of stringent guidelines with its overseas counterparts so that additional registrations can be avoided.

According to market players, any kind of relaxation for Indian intermediaries would go a long way in attracting a large amount of off-shore money into the Indian market.