Foreign-owned or controlled MFs are assessing the impact of changes in Foreign Exchange Management Act (FEMA) guidelines.
According to the new FEMA guidelines, AMCs controlled or owned by foreign companies will have to follow certain restrictions that are applicable to overseas investors. Interpreted this way, these AMCs could be at a disadvantage as compared to their domestic peers.
FEMA rules specify a cap on foreign direct or indirect investment across sectors. Large foreign funds or corporations or entities hold stakes in quite a few Indian AMCs that manage MFs. So far, such fund houses have enjoyed no restrictions on investment in any listed company in India.
However, following RBI’s new FEMA guidelines, some experts believe that such foreign owned/controlled AMCs investing in listed Indian companies could be violating FEMA rules. This is because the investments by such AMCs constitute indirect foreign holding that could be over and above the specified cap.
Two media reports suggest that HDFC, ICICI Prudential, Nippon India, Franklin Templeton, Mirae Asset, Invesco and BNP Paribas are among the fund houses that could be affected the most by the circular.
A CEO of one of these fund houses told Cafemutual that they are assessing the legality of the new FEMA rules. “There will be more clarity on this issue in a couple of days. It is not wise to speculate anything at this point,” he said on the condition of anonymity.
He also added that AMFI will take up this issue with SEBI if the law of the land puts them at a disadvantage.
The first reporting under the amended Foreign Exchange Management Act (FEMA) guidelines is to be done by November 14.
