The government?s decision to allow foreign investors, besides FIIs, to invest up to $10 billion (R45,000 crore) in equity schemes of mutual funds has come as a welcome break for the industry. Qualified foreign investors (QFIs), which include individuals as well as funds, will be allowed to invest under this category even as these investments will be regulated by the Securities and Exchange Board of India (Sebi). Sebi will issue necessary guidelines on the same before August 1, 2011, said the government.
At present, only foreign institutional investors (FIIs) and sub-accounts registered with the Sebi as well as NRIs are allowed to invest in mutual fund schemes in the country.
TP Raman, MD of Sundaram Mutual Fund, says, ?It?s positive for the industry as the $10 billion investment limit, which is about 25% of current equity assets, is large enough?. However, he is awaiting detailed policy framework on KYC (Know-Your-Customer) front from the regulator.
QFIs have been allowed to invest into Indian equity schemes through two routes, Unit confirmation receipt (UCR), in which foreign investor invests in foreign currency through an overseas depository or the direct route. In case of the direct route, foreign investor opens a demat with local depository after fulfilling KYC norms to invest directly into mutual fund units (through currency remittance). Only KYC compliant retail foreign investors would be allowed to invest with the DPs. In addition, mutual fund houses would also undertake KYC of QFIs.
Harshendu Bindal, President, Franklin Templeton Investments (India) said, ?This route is likely to be attractive for those investors looking to get a wider India exposure than those available currently?. He however said that distribution issues need to be sorted out and those with established global distribution network have an edge. ?Based on the final guidelines and evaluation of interest among global investors, we might look to offer some of our flagship India-domiciled products to global investors,? he said.
The government further mentioned that only QFIs from jurisdiction which are Financial Action Task Force (FATF) compliant and with which Sebi has signed MoUs under International Organization of Securities Commission (IOSCO) will be eligible to invest in MF under the scheme.
These include 34 countries and two regions: Europe and GCC (Gulf Coopoeration council). As of May, Indian mutual fund industry have average assets under management (AAUM) of over 7.3 lakh crore with equity assets comprising about R1.67 lakh crore.
