$4b isn’t enough, fund houses want more

MUMBAI: Mutual fund managers have welcomed the RBI’s decision to increase industrywide limit for investment in overseas securities by mutual funds to $4 billion. However, most of them say the central bank should raise the individual limit of $150 million per fund house. Fund managers say the limit prevents the asset management companies from achieving a scale of economy.

“We look forward to Sebi providing increased limits at the fund house level,” says Rajan Krishnan, business head, Principal Pnb AMC. “Increased investment limit will make overseas investing a more attractive proposition for fund houses as the scale of operations improves,” he added.

As of now only two fund houses — Principal and Franklin Templeton — have schemes that invest in overseas securities. A similar scheme by Fidelity is open for subscription, while other fund houses like UTI Mutual, Kotak, ING, Sundaram said to be in the process of launching such schemes. “It is a welcome move and a step in the right direction,” says Paras Adenwalla, chief investment officer at ING Vysya Mutual Fund, on the RBI’s move to increase the industrywide limit. “Opening the space gradually, rather than opening it at one go seems to be a sensible option,” he adds. The Committee on Fuller Capital Account Convertibility, under S S Tarapore had suggested phased raising of the the ceiling of overseas investments by mutual funds from $2 billion to $5 billion.

Investment in overseas securities provides a valuable opportunity to investors to diversify their risk. By having assets invested across multitude of markets say in Latin America, South East Asia, Central Europe and Eastern Europe, an investor can have the benefit of diversification, which would cushion the risks arising from having a concentrated portfolio.

The funds managed by Principal and Franklin Templeton, and also the one by Fidelity, which invest in overseas securities are feeder funds. This means that they pour all their assets into another larger mutual fund abroad , which in turn will invest in stocks in those markets.