Finance ministry exempts mutual funds from foreign-investor status

Govt has modified circular that classified MFs as investment vehicles

The finance ministry has clarified to foreign-owned mutual funds (MFs) that they will not be categorised as foreign investors and subjected to sectoral caps under the Foreign Exchange Management Act (Fema).

Last October, a circular had notified rules with regard to foreign investment in non-debt instruments, classifying mutual funds with over 50 per cent equity as “investment vehicles”.

This meant that downstream investment by such funds by way of subscription or acquisition of shares would have been considered “indirect foreign investment” if their investment manager or sponsor is owned or controlled by a non-resident.

The finance ministry has now said that mutual funds