Abhijit Pandey, a senior banker (name changed on request), sees a great opportunity in investing abroad. But even though he is legally permitted to invest up to $1,00,000 overseas annually, he does not wish to use this option.
There are no clear norms and guidelines in place for this kind of investment, he says, echoing the tone taken by the Prime Minister?s economy advisory council, which on Monday said administrative and procedural impediments were restricting the capital outflow.
Industry analysts reason that the scheme had turned out to be a non-starter. While the PM panel?s appeal to put in place a clear regulatory apparatus could speed up the process, officials in the finance ministry argue that norms in this regard are being finalised and would be announced shortly.
Fund managers say the present norms do not allow local institutions like the asset management companies (AMCs) and banks to invest overseas using this scheme on behalf of retail investors.
?And for individuals it?s not very easy to have an overseas account, establish contact with overseas entities and have knowledge of schemes available abroad,? said Sai Krishna Tampi, Head (portfolio management services), HSBC Asset Management, India.
Although AMCs are allowed to float overseas funds, they cannot utilise the $1,00,000 cap available to retail investors.
Currently, a single fund house can invest only up to 10% of its net assets, calculated as on March 31, in overseas securities, subject to a limit of $200 million. Some fund houses such as Principal, Fidelity and Franklin Templeton have floated separate schemes for investment in listed foreign companies.
However, there is no convergence between the overseas fund scheme of AMCs and the one that allow individuals to invest abroad.
In other words, if an AMC invests a part of an investor?s money in overseas securities, it will not be counted as overseas investment for that retail investor.
Apart from lack of regulations, there are other factors responsible for this lackadaisical response of investors. ?Since the rate of interest domestically is very strong, currency is strong; there is no ?natural pull? for investors for such schemes,? the economic advisory council chairman C Rangarajan told FE on Monday on the sidelines of Economic Outlook 2007-08 conference.
Analysts argue that, once norms are in place, the scheme can succeed since investors will lap it up to diversify their portfolio.
?It can also become a mass-market instrument,? said one fund manager. A finance ministry official said the RBI and Securities & Exchange Board of India (SEBI) have set up a joint committee to frame guidelines in this regard. The proposed norms would allow AMCs to set up dedicated funds for overseas investment purpose, the official said.
