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This is an archive article published on February 1, 2007

Regulatory framework not in place for investing abroad, says fund major Fidelity

Eighteen months into India and one of the world’s largest asset management companies, Fidelity, is looking at launching more mutual fund products here

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Eighteen months into India and one of the world’s largest asset management companies, Fidelity, is looking at launching more mutual fund products here, but laments the lack of ‘a regulatory framework’ for creating a fund that invests abroad taking advantage of the increased limit for overseas investments from $25,000 to $50,000.

While the bull run on Dalal Street has largely fuelled investors’ greater appetite for equities, Fidelity International MD, Richard Wastcoat, emphasises the need for investors to ‘diversify’ by investing in overseas markets.

“With markets so exciting here, one may ask why invest abroad. In the long run, we don’t want a repeat of what happened here 10 years ago. The markets rose sharply and then crashed, leading to a prolonged loss in investor confidence,” he said, referring to the 1994 crash.

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In this regard, two things have been “frustrating” Fidelity, which has applied to Sebi for setting up a fund that invests in global markets. “We hope the ability to invest overseas through feeder funds or directly can be brought to fruition as soon as possible. We’re frustrated again the announcement to raise the overseas investment limit from $25,000 to $50,000 is not yet backed by regulatory framework,” said Wastcoat, who also feels ‘industry doesn’t speak in one voice’ on the issue.

“The (RBI) circular talked of both the feeder fund and direct investing route. If you read all words together, (it implies) you could only invest in listed equities. Equity funds get some leeway to manage their cash positions till they are fully invested. Then there are IPOs and till those stocks get listed, they are ‘unlisted.’ We need some clarity to come through on this,” Ashu Suyash, MD and country head, Fidelity Fund Management said. explained.

The company is keen to establish a long-term track record here. Said Wastcoat: “India is important to us — it has the second largest employee base outside the US if you consider the back office operations in Gurgaon and investment team based here.”

Starting with one fund in 2005, Fidelity now has six products with Rs 5,800 crore of assets under management (AUM). “These are mostly in equity funds with over 800,000 investors in India, ” said Suyash.

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Though the Indian fund industry’s total assets of $75 billion are a fraction of those in developed markets, the net flows into Indian funds last year indicate that the situation is changing. “In UK, mutual funds have about $800 billion of AUM, but net inflows last year were just $40 billion, whereas India saw net inflows of $23 billion. The asset mix has also changed sharply from the earlier bias towards fixed income products,” Wastcoat pointed out.

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