Gift City: A Promising Opportunity for Mutual Funds
Introduction
New Delhi: Mutual funds may soon have an opportunity to invest in companies traded in Gujarat’s Gift City exchanges beyond the usual cap implemented for their overseas investments. This development comes as the government opens up the special economic zone for direct listing of Indian firms.
Gift city Mutual Fund – Estabizz Fintech
IFSCA Expert Panel Recommendation
A 16-member expert panel, appointed by the International Financial Services Centers Authority (IFSCA), recommended a special carve-out for mutual funds interested in investing in Gift City last week. Currently, mutual fund investments are considered overseas investments, subject to various investment limits. The Reserve Bank of India (RBI) permits the entire mutual fund industry to invest up to $7 billion in overseas companies, with no individual fund allowed to invest more than $1 billion in foreign securities.
If the expert committee’s recommendation is implemented, mutual funds’ investments in Indian companies in Gift City will no longer be considered overseas investments. Instead, a separate limit will be put in place for Gift City.
Gift City’s Current Offerings and Future Plans
At present, Gift City only offers derivatives trading and has no listed companies. The government is working to enable Indian firms to list directly in Gift City before opening up direct overseas listings.
The move aims to enhance liquidity in Gift City. Mutual funds have played a vital role in India’s onshore capital markets, where they manage assets of ₹50 trillion. Listing companies in Gift City will benefit both the special zone and domestic funds, such as mutual funds, by offering them increased investment opportunities.
Benefiting the Mutual Fund Industry
Expanding investment horizons is a constant goal for the mutual fund industry. Suresh Swamy, a partner at Price Waterhouse & Co. Ltd., said that the potential inclusion of Indian companies listed on the IFSC as investment options for mutual funds presents a significant opportunity. Not only would this benefit investors, but it would also contribute positively to the development of the Gift City IFSC ecosystem. This initiative is set to pave new investment avenues, bolster capital flow, and catalyze economic growth within the IFSC framework.
Need for Coordination Between Regulators
However, implementing such a framework will require coordination between multiple regulators. Jaiman Patel, a partner at EY India, highlighted that this would be a groundbreaking reform for various stakeholders. It would allow Indian companies to access foreign capital in a familiar setting, offering a conducive regulatory framework, tax concessions, and trading in foreign currency.
But the finer aspects of implementation are important to consider, as they require effective collaboration among several government ministries and sectoral regulators in India. These parties must amend existing regulations to translate the intended vision into reality.
]
TCS Restrictions on Mutual Fund Investments
A. Balasubramanian, managing director of Aditya Birla Sun Life AMC, commented that since Gift City is an offshore destination, the limit cannot be outside. He suggested easing the tax collected at source (TCS) restrictions on mutual fund investments in Gift City.
The Securities and Exchange Board of India regulates mutual funds’ onshore investments, while RBI sets rules for fund remittance outside by mutual funds. Creating a special carve-out will necessitate amendments to numerous laws overseen by different regulators, as market participants noted.
Overseas Listing Framework for Gift City
In November, the Ministry of Corporate Affairs permitted certain unlisted firms to list overseas. As a first step, the overseas listing framework is being established for Gift City, where Indian companies can raise dollar funding.
The IFSCA is also contemplating offering a similar carve-out to alternative investment funds to attract money from wealthy investors into Gift City.
Overall, Gift City presents a promising opportunity for mutual funds and alternative investment funds to diversify their portfolios and gain exposure to Indian companies in a different setting. The government and regulatory authorities’ collaboration will be crucial in implementing this change effectively, benefiting investors and the broader economy.
The Future of Mutual Funds in Gift City
Gift City’s transformation into an investment hub for mutual funds and alternative investment funds could revolutionize how funds are invested in India. This development promises to create a more comprehensive and diversified financial ecosystem, beneficial for all market players.
Strengthening International Financial Services
Implementation of the expert committee’s recommendations can elevate Gift City to an International Financial Services Centre (IFSC) status. This move would significantly enhance India’s financial services, making it more competitive on a global scale.
Stakeholders’ Views
“[This] will be a pathbreaking reform for various stakeholders…” said Jaiman Patel, partner, EY India. Such a reform would enable Indian companies to access foreign capital in a familiar environment. Jaiman emphasizes the need for effective collaboration among government ministries and sectoral regulators in India to successfully implement this change.
Tapping into Foreign Capital
Further, the opening of Gift City can enable Indian companies to tap into foreign capital without needing to list themselves overseas. This will make it easier for firms to raise funds in foreign currencies, thereby potentially stimulating economic growth.
Broadening Market Horizons
Suresh Swamy, a partner at Price Waterhouse & Co. Llp, said, “[This initiative is poised to] pave [the] way for new investment avenues, bolster the flow of capital and catalyse economic growth within the IFSC framework.” The opportunity to invest in companies listed in Gift City will provide mutual funds with a slew of previously untapped prospects. This will offer not just more investment avenues, but also a better diversification of portfolios, which bodes well for the investors.
Conclusion
In conclusion, this new phase in Gift City’s growth could have far-reaching implications for the mutual fund industry. It promises to create a more integrated and dynamic investment ecosystem, crucial for the success and growth of India’s capital markets. By investing in Gift City, mutual funds will have the chance to find attractive and diverse investment targets, bringing with it potentially significant returns.
However, the successful implementation of these changes relies heavily on effective coordination and collaboration among government ministries and sectoral regulators. Only time will tell how these changes are received by the mutual fund industry and how effectively they can be integrated into India’s financial landscape.
