America, here we come!

MUMBAI: Many domestic mutual funds (MFs) are working on products which invest in overseas securities markets after the Securities and Exchange Board of India (Sebi) last week issued guidelines for the same. Lauding Sebi’s new guidelines on overseas investments, some of the MFs, which ET spoke to, did not rule out new products for overseas investments in the near future.

“We are seriously looking at it. And we believe, there is a lot of scope for such products,” said Sandeep Dasgupta, chief executive officer, Deutsche Asset Management. UTI Mutual Fund, SBI Mutual Fund, Tata Mutual Fund, Birla Sun Life said they were exploring options to launch one.

Earlier this month, Sebi had issued guidelines on overseas investments by MFs, saying MFs investing in exchange traded funds (ETF) should be in existence for at least 10 years or have experience in investing in foreign securities.

It also caps MF investments in ETFs at 10% of the net assets as on March 31 or $50m per MF. But, the limit for all Sebi-registered MFs to invest in ETFs is $1bn out of the $2-bn cap for overall investments.

The norms permit MFs to make investments in ADRs or GDRs of Indian companies, equity of foreign companies listed on recognised overseas stock exchanges, rated debt instruments and units of foreign regulated MFs (fund of funds).

These norms followed the RBI’s notification late July, which removed the requirement that MFs can investment in foreign companies only with 10% stake in a listed Indian company and the ceiling for overseas investment by MFs has been raised to $2bn from $1bn.

Fund officials said that the norm that needed a foreign company to hold a reciprocal 10% stake in an Indian company was the main obstacle to MFs planning to invest overseas, than the overall investment ceiling of $1bn. The previous norms restricted the scope for investments which were limited only to a few multinational companies.

Large MFs, with a foreign partner, are seen as the likely gainers of the new investment norms, as they hold an edge over small funds on research and fund manager expertise.

“It will not be viable for small MFs to hire a competent fund managers overseas and gain access to competitive research. In addition, there will be only a few ready to partner with these small funds who hardly have any footprint in India,” said an official with a foreign MF.

But fund managers are still not sure about the success of an overseas investment product with the common man. “The product may not have mass appeal and would be more suited for HNIs and sophisticated investors, who want to diversify country and currency risks,” said an official with SBI Mutual Fund, which already has a tie-up with Sociiti Ginirale Asset Management (SGAM).

Principal Mutual Fund was the first Indian MF to launch an overseas fund, Principal Global Opportunities Fund, couple of years ago, when the government introduced norms for overseas investments by MFs. In April, Franklin Templeton Mutual Fund had filed for a similar scheme, which was to invest up to 50% of assets in overseas stocks.