MFs seek feeder fund for equity investments abroad

Mutual fund houses are planning to ask the Securities and Exchange Board of India (Sebi) to allow them to introduce specialised funds, called feeder funds or mirror funds, through which Indian individual investors can invest in equities abroad, under the recently introduced $25,000 limit for investments overseas.

Sanjay Prakash, chief executive officer of HSBC Asset Management Co, said, "Feeder funds are not permitted by law, so foreign funds cannot use this route to attract Indian investors to invest in their schemes, floated overseas."

Pankaj Razdan, managing director of Pru-ICICI Mutual Fund, said, "All fund houses are exploring a number of options "" whether to route it through banks or float feeder or mirror funds here."

The regulations at present do not provide for such funds.

But investors can route their investments through foreign banks that have asset management companies. "They can walk into any of these banks and get units allocated by the offshore entity," said Prakash.

However, investors will not be able to evaluate any of the schemes they are investing in and will have to entirely depend on information from the bank of which they are a customer.

In addition, they can be customer of banks that have associated asset management companies operating overseas or are distributing such funds overseas.

A feeder fund or even a mirror fund, on the other hand, can be launched in India and it can mirror the overseas fund.

Industry officials said that it would be an ideal opportunity for investors to invest in shares abroad.

However, the finer details of launching a mirror fund will have to be thrashed out with the regulators, both the Securities and Exchange Board of India (Sebi) as well as the Reserve Bank of India (RBI), industry circles said.

While domestic residents were recently permitted to invest up to $25,000 in overseas securities, most investors would rather not buy individual securities but feed money into an overseas fund as this reduces their risk.

But not all individuals would be willing to take the risk of investing in an overseas fund which they cannot track on a regular basis, industry sources said.