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.