At least half a dozen domestic asset management companies, including ICICI Prudential, UTI Mutual Fund and others, have plans to tie up with foreign players to raise offshore funds to invest in Indian equities. The total assets under management of these offshore funds are conservatively pegged at $5-7 billion.
Domestic fund houses are only allowed to provide advisory services, according to the Securities and Exchange Board of India (Sebi) guidelines. Interest from overseas investors wanting to latch on to the India growth story has gone up, particularly after Sebi's participatory notes (P-notes) regulation.
"After Sebi's order on P-notes, if people want to invest in India, they could approach offshore funds. So a lot of money could come into these funds," said a senior fund manager of a top fund house.
After collecting about Rs 2,000 crore (Rs 20 billion) from Japanese investors in Singapore through a joint venture with Shinsei Bank for investment in Indian equities early this year, UTI Mutual Fund is on a fund-raising spree once again.
The state-owned fund house is looking to raise up to Rs 15,000 crore (Rs 150 billion) from Europe, the US and West Asia through joint ventures with several global financial institutions.
Even relatively younger fund houses, such as Lotus Mutual Fund, are looking at raising funds from overseas investors. The fund would be raised through the Mauritius route, said Lotus India CEO Ajay Bagga.
Fund houses that already manage offshore funds have seen net inflows in the recent past. Birla Sun Life Mutual Fund's India Advantage Fund launched in 1996 for non-resident Indian (NRI) investors, foreign nationals and high networth individuals (HNIs) and its India Excel Fund for Canadian investors have a corpus of Rs 2,900 crore (Rs 29 billion) today. Birla Sun Life Mutual Fund has a tie-up with Excel Asset Management of Canada for the India Excel Fund.
The India Advantage Fund has seen a nearly 15 per cent increase in the corpus from the end of August to the end of October.
"There is a lot of interest about the India growth story overseas, especially from the GCC (Gulf Cooperation Council) countries. We are looking at multiple funds, including a Shari'ah fund targeted at this set of investors," said Jaideep Bhattacharya, chief marketing officer, UTI Mutual Fund.
Currently, UTI Mutual Fund manages at least five offshore funds, which invest in the Indian stock market.
Tata Mutual Fund similarly manages 3-4 offshore funds. Recently, the AMC entered into an agreement with Mizuho Bank, Japan's second largest commercial bank, which allows Japanese investors to invest in its offshore fund.
Over 30,000 Japanese investors have pumped in nearly $700 million into Tata AMC's offshore fund. Similarly, Kotak Mahindra also manages six to seven offshore funds, which invest in the Indian equity markets.
ING Investments is also planning an India-specific fund for its offshore clients. "We are looking at an Indian product for our offshore clients such as institutions, non-resident Indians, and other general investors. We are trying to gauge the demand for such a product," Vineet K Vohra, MD and CEO, ING Investments, had said in an interview.
Offshore Ventures
