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Norms for mutual funds may be eased

While easing the investment norms for MF taking exposure abroad, FM may double the sovereign investment ceiling to $ 2 bn.

india Updated: Feb 11, 2006 20:51 IST
Hindustan Times
Hindustan Times

While easing the investment norms for mutual funds taking exposure abroad, Finance Minister P Chidambaram may double the sovereign investment ceiling to $ 2 billion.

Further, mutual funds may may also be allowed to tap the individuals seeking to invest abroad within the annual limit of US $25,000. This is expected to give a fillip to several mutual funds having plans to take enhanced exposure abroad. Finance Ministry proposal to raise the ceiling for MFs’ investment abroad and easing the related norms will also lead to further integration with external monetary and equity markets.

In the budget for the next fiscal, Chidambaram may in particular revisit the stipulation restricting the mutual funds to invest in international companies only with Indian listed subsidiaries in which they have a minimum of 10 per cent holding.

While the RBI Governor Y.V. Reddy has taken the position that this norm would have to stay, SEBI chairman Damodaran and Finance Ministry officials are in favour of removing this stip ulation.

The issue came up for discussion at the high-level coordination committee meeting between RBI, SEBI and Finance Ministry officials earlier this month.

Though mutual funds are allowed to take exposure in the equity markets abroad, the stringent provision has made this operation ‘restrictive’. There would be only eight to 10 international companies having at least 10 per cent equity in a listed Indian subsidiary in which MFs could take exposure, sources said.

While $1 billion is the upper ceiling on equity investments abroad by mutual funds, their total exposure in equities abroad is a meagre $3 million as on date. “It is not that there are no opportunities to make money abroad in the equity markets. But the restrictive norms will have to removed,” said a source.

However, RBI has argued that unless the international company has its pres ence in India through a listed subsidiary, the ‘risk is too large for our mutual funds to take position abroad’. “Companies abroad with Indian listed subsidiaries will be more responsible and accountable to our investments thereby providing the required comfort level,” RBI officials argued.

First Published: Feb 09, 2006 21:18 IST