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Thursday, May 08, 2014

Fund houses awaiting clarity on FATCA regulations

Several fund houses have stopped accepting fresh investments from US citizens.  

Stringent compliance requirements under Foreign Account Tax Compliance Act (FATCA) have led several fund houses to stop taking fresh investments from US investors. 

The FATCA regulations (an anti-tax evasion law) will come into effect from 1st July. Once implemented, fund houses will be required to report information on US investors to US IRS (Internal Revenue Service) through CBDT. India has agreed ‘in substance’ to FATCA by signing an Intergovernmental Agreement (IGA) with US. 

While several fund houses have stopped taking fresh investments from US citizens about one or two years back, most recently DSP BlackRock has also followed suit.   

“The regulatory requirements are onerous. There’s no one time registration with SEC. There are hardly any US investors who are investing in Indian funds. US citizens can anyway invest in funds which are domiciled locally which have exposure to India,” said Pankaj Sharma, Head of Business Development & Risk Management, DSP BlackRock Investment Managers. 

Fund houses are not accepting investments from investors residing in Canada either because the Canadian Securities Administrator (CSA) requires AMCs to register with it before selling any schemes to its residents. If existing investors subsequently become U.S. or Canada residents, they too will not be able to make any additional investments.  

Fund houses have allowed existing US citizens to redeem their investments from their schemes. Fund officials say that not many US citizens have invested in Indian mutual funds. 

“We have stopped taking fresh investments from US citizens. The laws are stringent so not many fund houses are keen to tap this opportunity,” said an official from UTI Mutual Fund. 

“We have stopped taking fresh investments from US residents. We will register with SEC going ahead. There are stringent rules when it comes to marketing mutual funds in US,” said Srinivas Jain, Executive Director & Chief Marketing Officer (Strategy and International Business), SBI Mutual Fund. 

Meanwhile fund houses are waiting for guidelines from SEBI on FATCA. “We are awaiting guidelines from SEBI. We have taken some legal advice on this issue. We’ll decide the future course of action depending on the requirements of SEBI,” said a product head of a large fund house. 

Some officials say that US NRIs can potentially be a sizable market for the Indian mutual fund industry. They believe that AMCs can seek mandates from US entities to manage investments in India once the regulations are in place.
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