New Delhi: Foreign institutional investors (FIIs) that have generally stayed away from investing in Indian mutual funds are beginning to look at the asset class. Although the funds under management of asset management companies in India has grown from Rs2.31 trillion at the end of March 2006 to Rs3.28 trillion at the end of March 2007 and further to Rs4 trillion by 30 June, much of this comes from retail and high net worth investors and companies.
The only exception to this is the Banking Index Benchmark Exchange Traded Fund (Bank BeES), which can be bought and sold like a share on the exchange. FIIs account for 50% of the fund’s corpus. This is because most FIIs have reached the maximum permissible limit (in terms of equity) in banking firms and see the fund as an alternative way to invest in these companies. FIIs prefer to invest in equity. Thus far in 2007 they have invested $7.6 billion (Rs30,700 crore) in Indian equities.
Rather than set up a team of researchers to look at Indian mutual funds and decide which one to invest in, some of the FIIs that are considering investments in mutual funds are talking to Value Research Online, an independent mutual funds research firm. The company already advises two FIIs, Singapore-based Synergy India Fund and UK-based Forsyth Partners Ltd on their investments in mutual funds. Together, the two FIIs, have around $200 million in Indian mutual funds.
Dhirendra Kumar, CEO of Value Research, said that his company was in talks with more FIIs for “advisory services for investments in the Indian mutual fund industry.” He said that these FIIs were from Japan, South Africa, South Korea, and Europe, and added that Value Research has almost signed on with two of these but did not provide any more details.
While foreign fund of funds (mutual funds that, in turn, invest in other mutual funds) may be interested in Indian funds, the only way they can invest in Indian funds is by registering with stock market regulator Sebi as an FII.
It isn’t known if there are other FIIs looking to invest in Indian mutual funds, nor is their total quantum of investments in mutual funds in the country known.
“Considering the growth in Indian stock market, it could be possible that foreign funds are investing through mutual funds,” said Ved Prakash Chaturvedi, managing director of Tata Asset Management Ltd.