Mutuals Give Adrs, Gdrs The Go-By

Six months after the government allowed Indian mutual funds to invest in ADRs and GDRs of Indian companies, not a single mutual fund has availed of the facility.

Only two mutual funds _ Reliance Mutual Fund and Kothari Pioneer _ have sought permission from the Securities and Exchange Board of India (Sebi) and their approvals are awaited. Sources said that the Indian mutual fund industry is not finding investing in GDRs and ADRs of Indian companies attractive as the underlying shares available here are much cheaper.

Sebi executive director Ashok Kacker confirmed that only two mutual funds had applied for approval to invest in ADRs and GDRs. This has led to fresh demands from the industry to allow mutual funds to invest in shares of any overseas company and not restrict it to just ADRs and GDRs of Indian companies.

 

A permission to this effect could throw up investment opportunities for mutual funds in the spate of Internet stocks in overseas markets.

Any single mutual fund could invest upto a maximum of $50 million but not more than 10 per cent of the total net asset value. A Sebi committee was set to lay down the guidelines. Subsequently, however, the government took a decision to restrict the investment to only ADRs and GDRs of Indian companies but industry sources said that with the foreign exchange position looking healthy the government should revert to allowing investment in any company. Sebi sources said that for existing schemes, a nod from the trustees would need to be sought and then unitholders would have to be provided an exit option with no extra load and only subsequent to this would such a scheme be allowed to invest in ADRs and GDRs of Indian companies. It is for this reason, that several mutual funds coming out with fresh schemes are stating upfront to investors that they may invest in Indian ADRs and GDRs as well as in foreign companies as and when the regulatory system allows for the same.

"They probably do not want to find themselves in a situation where they need to seek fresh unitholder nod and are hence preparing themselves for this. But as of now, only two existing schemes from Kothari Pioneer and Reliance Mutual Fund have been submitted to us. We expect to grant the approval shortly," said a Sebi source.