Wider playing field for MFs, big investors

Big investors will now be able to invest up to $100,000 per annum in foreign assets after the RBI today increased the present limit of $50,000.

Big investors will now be able to invest up to $100,000 per annum in foreign assets after the RBI today increased the present limit of $50,000. The bank also increased the aggregate investment ceiling for the Indian mutual fund industry into foreign equity from $3 billion to $4 billion.

The increase in this cap will boost the mutual fund industry as they will have a higher scale to invest abroad and can plan more funds. Currently in India, there are two fund houses, Principal and Franklin Templeton that have funds investing in overseas equity. There are more players entering this segment with Fidelity already into the market with its NFO and Kotak Mutual Fund and Sundaram BNP Paribas having filed for the same.

Said Ashu Suyash, managing director and country head, Fidelity Fund Management, “The increase in the overall limit for the mutual fund industry for overseas investment from $3 billion to $4 billion and in the limit for remittances overseas for individuals are strong signals that directionally we look well set on the course to overseas investing.”

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As of now, the limit for a fund house for overseas investment is limited to $150 million and hence Sebi will have to revise the cap so that the fund houses can benefit from the RBI’s move, said Rajan Krishnan, business head at Principal PNB asset management company.

“I expect the cap for fund houses to be raised to $200 million for individual players which will give more space for the individual players and they can plan more funds in the space,” he said.

On home loan front, RBI announced a reduction in the risk weight from 75 per cent to 50 per cent on home loans up to Rs 20 lakh. This is expected to bring down the interest rates on home loans up to 0.5 percentage points if bankers pass on the benefits to the consumers.

This action is expected to bring relief to those seeking small home loans. “This will come as a relaxation to the home loan seekers and a further hike is ruled out,” said S C Gupta, chairman of PNB.

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This might come as a breather at a time when the market has seen interest rates on home loans moving up by 2- 3 percentage points in a period of three months.

Though this has come as a temporary measure and will be reviewed after one year, it is expected to bring the home loan rates down. Said RBI Governor Y V Reddy: “The central bank expects the banks to judiciously relax the provisioning norms, while disbursing housing loans of up to Rs 20 lakh.”

This also comes as a positive to the housing construction industry which is suffering due to expensive home loans. Said Arvind Parekh, chief executive of Omaxe: “The RBI’s initiative is a positive step as the demand within this segment was on the decline.”