FM allows foreign access, gives MFs reason to smile

Mumbai: The Indian mutual fund industry, reeling under strict regulatory norms related to commissions and disclosures, has finally got a reason to smile. Finance Minister Pranab Mukherjee, while presenting the Union Budget 2011-12, has allowed fund houses to tap foreign nationals for investing in equity schemes.

“To liberalise the portfolio investment route, it has been decided to permit Sebi-registered mutual funds to accept subscriptions from foreign investors who meet the KYC (Know Your Customer) requirements for equity schemes,” Mukherjee said while presenting the Budget in Parliament. “This would enable Indian mutual funds to have a direct access to foreign investors and widen the class of foreign investors in the Indian equity market, he added.

It is widely believed that the move would lead to a lot of mid-sized foreign funds and wealthy individuals looking at the Indian equity market more seriously. According to the current norms, foreign investors need to first register with the Securities and Exchange Board of India (Sebi) before investing in the domestic equity markets. As a result, mid-sized and smaller funds which did not have a significant India allocation chose alternative investment avenues, including offshore funds and participatory notes (PNs). Going forward, they just need to comply with the KYC norms and start investing.

Experts feel the government’s initiative could prove to be a “game-changer” for the Indian fund industry, as this would pave the way for large global investors to invest directly into mutual fund schemes.