VR Logo

Funds Get Freedom to Hunt Abroad

Presently, a fund can invest abroad in the stocks of only those foreign companies, which have a listed Indian subsidiary with at least 10 per cent share holding in it. FM has proposed to remove this restriction

In a crucial step that could open yet another window of diversification for Indian mutual fund investors, the Finance Minister has proposed to raise the ceiling on aggregate investment by mutual funds in overseas instruments from $ 1 billion to $ 2 billion. However, a more significant proposal has been to remove the requirement of 10 per cent reciprocal share holding. Presently, a domestic mutual fund can invest abroad in the stocks of only those foreign companies, which have a listed Indian subsidiary with at least 10 per cent share holding in it. But this clause has made offshore equity investments far too restrictive for funds as there are only about 40 odd stocks that satisfy this criteria. If approved, investment by mutual funds in foreign markets might finally take-off.

Other Highlights
Mutual funds may be allowed to invest cumulatively up to $ 1 billion in overseas exchange traded funds.
The government will set up an investor protection fund under the aegis of SEBI, funded by fines and penalties recovered by SEBI. This is targeted at bolstering confidence among retail investors.
The finance minister has proposed to treat open-ended equity-oriented schemes and close-ended equity-oriented schemes on par for the purpose of exemption from dividend distribution tax.
Securities transaction tax (STT) will be increased by 25 per cent. Till now equity mutual funds are subject to an STT of 0.20 per cent at the time of redemption of units. As per the new proposal, equity fund investors would have to pay 0.25 per cent STT.