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India's Templeton to launch first overseas fund

US-based Franklin Templeton Investments' Indian unit said on Wednesday it would soon launch its first international fund, which will allow Indians to invest in US government securities.

India's Templeton Asset Management said at a news conference that its open-ended Franklin India International Fund will be open for subscription at par value between December 2 and 20.

"The fund allows Indian investors to diversify not just across asset classes but across currencies as well," Rajiv Vij, Franklin Templeton's regional head, was quoted as saying in a statement.

"This will help in stabilising their returns as different countries go through different economic cycles."

The Indian fund will invest 80 per cent of its assets in US government securities and the remaining 20 per cent in short-term rupee instruments.

It will buy units in its parent's Franklin US Government Fund, which invests only in instruments issued or backed by the US government.

A considerable portion of the fund's $2.5 billion assets are invested in Ginnie Maes, which are mortgage-backed bonds.

India, which is gradually moving towards making the rupee fully convertible on the capital account, allowed mutual funds in its budget in February to invest in top-rated overseas debt.

It allowed fund mangers to invest up to four percent of their total assets -- with a cap of $50 million -- in top-grade foreign debt of countries with freely convertible currencies.

Given the restrictions, Templeton said in a statement it expected its international fund to be very small, which could result in higher transactional expenses and poor economies of scale.

But Vij said the scheme would suit investors who had future dollar expenses as the investment could act as a hedge against any depreciation in the rupee.

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