Four months have passed since the Indian banking regulator doubled the international investing limit to $50,000 by an individual, but banks and financial services players are yet to offer international investing opportunities to investors.
However, local mutual funds have started lining up international products for domestic investors.
Following the footsteps of Franklin Templeton Investments and PNB Principal Asset Management, Fidelity Fund Management has launched Fidelity International Opportunities Fund. Meanwhile, Kotak Mahindra Asset Management and Sundaram BNP Paribas Asset Management too are in the process of seeking approval from stock market regulator Securities and Exchange Board of India for launching variants of international funds.
Sundaram’s Global Advantage Fund will follow passive investing as the fund will seek exposure in overseas exchange traded funds, while Kotak’s Global Emerging Market Fund will invest in the Global Emerging Equity Fund of T Rowe Price, the international fund manager. The good news for investors is that investments in such overseas funds are not counted against the $50,000 individual limit prescribed by the central bank.
Fidelity’s International Fund will invest up to 65% of its assets in Indian stocks and 35% will be invested in the stocks of companies in the Asian region.
India’s tax regulations are such that these funds cannot have more than 35% exposure in stocks abroad. In order to be eligible for exemption from capital gains tax and dividend distribution tax, equity funds need to invest a minimum of 65% of their assets in Indian listed stocks. There is no capital gains tax on long-term investments while short-term capital gains, on investment up to one year, tax is 10%.
The dividend distribution tax, paid by the funds, is now 25%. Taking into account the surcharge on such tax and education cess, the effective dividend distribution tax works out to 28.32%.
Besides, each asset management company cannot have an exposure of more than $150 million to international stocks. “As regulations become more flexible, we will seek Sebi approval to increase our exposure to international stocks,” said Ashu Suyash, managing director and country head, Fidelity Fund Management.
“The idea behind floating an international fund is not just about diversification but it’s also about opportunities in other markets as well,” said Rajesh Singh who will manage this fund.
Citing instances of the opportunities in the international markets, he said during the negotiations between Tata Steel and Corus, the shares of Tata Steel fell but the Corus shareholders gained as their stock price rose. Indian investors who had the ability to invest in both stocks could have gained during the auction even if eventually end up with just Tata shares and cash for the Corus shares.
Energy Resources of Australia, the third largest uranium producer in the world, and China Life, the largest life insurance company in China, have seen their stock prices rising manifold since 2004. This underscores how “Indian markets have a low positive correlation with the other Asian countries...even by going away from Indian markets, one can earn pretty good returns,” said Jed Wrigley, director at Fidelity International.
He pointed out even though their European funds were allowed to invest up to 20% in overseas stocks, the fund house found that a major portion of the returns came from the international portfolio.
The Fidelity International Opportunities Fund will open for subscription on 9 April and close on 30 April 2007. The minimum amount for lump sum investments is Rs5,000 and multiples of Rs1,000.