The mutual fund industry has called for stringent rules to be framed in relation to the clearances for overseas investments. In the first round of talks held with the Securities and Exchange Board of India (Sebi), the industry has stated that a clear differential must be made between approval of a sponsor of the fund from approval of fund managers.
The rationale behind this stand is that since investment in overseas markets will require specialised decision-making and market sense, a domestic company, which may be a good sponsor, may not necessarily make a good fund manager.
The sub-committee formed by the market regulator to look into the issue, has, last week, commenced discussions relating to framing guidelines for mutual funds investments in overseas markets, through specific schemes, with an upper limit of $50 million per fund. The Sun F & C Asset Management Company has already filed applications for two schemes to make investments in overseas markets.
Issues relating to disclosure compliance, the risk profile taken by the mutual fund while making investments, and details of offer documents have already been discussed. The kind of markets where investments could be made and whether there should be restrictions were also discussed.
The mutual fund industry, represented in the sub-committee by Association of Mutual Fund Industry (Amfi) chairman A P Kurien and Templeton CEO Vijay Advani, is of the view that the broad set of guidelines should be framed without delay so that the industry could take maximum advantage of changing market conditions.
We feel there should be stringent rules when the issue of granting licences by Sebi comes up, a source said.
Discussions have also taken place on whether the minimum investment levels should be stringent. The definition of the mutual fund investor for such schemes has also been discussed.A section of the MF industry suggests that small-time investors should not be allowed to participate in such forms of investments.
UTI is currently in the process of designing its schemes for such investments. The MF has also appealed to the regulator that it should be exempted from the sub-limit of $50 million per fund, and its schemes should be treated differently from other funds schemes.
Templeton AMC, which has increased its exposure to the Indian markets from $135 million to over $ 600 million in the past fifteen months, is also keen to move ahead with such schemes. A proposal to this effect will be filed with the regulator after the broad set of guidelines are framed.
