News: RBI okays $2bn foreign investment by mutual funds
(TNN 29/07/2006) Mumbai - The RBI on Thursday doubled the aggregate ceiling for investment by domestic mutual funds in overseas securities to $2bn.
The central bank also removed the requirement that mutual funds can invest in overseas securities of only those foreign companies with a 10% shareholding in a Indian company listed at the domestic bourses.
Finance minister P Chidambaram had proposed this measure in this year’s budget. The notification also states that a limited number of “qualified Indian Mutual Funds” can invest cumulatively up to $1bn in overseas Exchange Traded Funds.
Fund managers said the norm that needed a foreign company to hold a reciprocal 10% stake in an Indian company was the main hindrance to investments overseas, than the overall investment ceiling of $1bn. This had limited the scope for investments to a handful of multinational companies with subsidiaries in India.
Fund managers said the relaxation of investment norms has opened up options for mutual funds to unveil new products for overseas markets and spread risks, especially when valuations of domestic stock markets are higher than most other emerging markets.
However, mutual funds which have a foreign partner are seen as the likely gainers of the new investment norms, as domestic funds lack expertise to invest abroad.
“There are several costs attached to investing abroad such as hiring competent fund manager, which may not be viable for domestic funds,” said a CEO with a foreign mutual fund.
The central bank also removed the requirement that mutual funds can invest in overseas securities of only those foreign companies with a 10% shareholding in a Indian company listed at the domestic bourses.
Finance minister P Chidambaram had proposed this measure in this year’s budget. The notification also states that a limited number of “qualified Indian Mutual Funds” can invest cumulatively up to $1bn in overseas Exchange Traded Funds.
Fund managers said the norm that needed a foreign company to hold a reciprocal 10% stake in an Indian company was the main hindrance to investments overseas, than the overall investment ceiling of $1bn. This had limited the scope for investments to a handful of multinational companies with subsidiaries in India.
Fund managers said the relaxation of investment norms has opened up options for mutual funds to unveil new products for overseas markets and spread risks, especially when valuations of domestic stock markets are higher than most other emerging markets.
However, mutual funds which have a foreign partner are seen as the likely gainers of the new investment norms, as domestic funds lack expertise to invest abroad.
“There are several costs attached to investing abroad such as hiring competent fund manager, which may not be viable for domestic funds,” said a CEO with a foreign mutual fund.
posted by InCar Group Press Room at 12:17
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