Foreign retail investors planning to invest directly in mutual fund schemes may now get to do so even if they comply with the KYC (know your customer) norms in their respective countries. The move is expected to broadbase the mutual fund investor class.
“A foreign investor who has complied with KYC norms in other countries may be permitted,” said a government official on the condition of anonymity.
Following a budget announcement, the Centre and the Securities and Exchange Board of India (SEBI) will chalk out a detailed list of KYC norms for foreign retail investors to invest directly in Indian mutual fund schemes.
“To liberalise the portfolio management route, it has been decided to permit SEBI registered mutual funds to accept subscriptions from foreign investors who meet the KYC requirements for equity schemes,” finance minister Pranab Mukherjee had said in his budget speech.
Fund houses think the move will smoothen things as doing a KYC check for foreign retail investors is a big hurdle. “If the KYC can be accepted from a local jurisdiction, it will be a big boost,” said the head of a mutual fund.
While KYC is one aspect, income tax is another aspect that requires clarity, said experts.
“We need to see the extent of KYC required and whether the investor will need to have a PAN number for income tax needs. Once that is done, each fund will have to get the approval from the jurisdictions where they have to be sold,” said Sandesh Kirkire, CEO, Kotak Mutual Fund.
The decision to allow direct retail foreign investment in mutual funds is likely to result in strong fund flow in Indian mutual fund schemes. “I think that in the next 3-5 years as high as 20% of the total net sales will come from retail foreign investors because Indian mutual funds are not only competitive in terms of performance but also on the service front,” said Jaideep Bhattacharya, chief marketing officer, UTI Mutual Fund.