Gift City may have a surprise in store for mutual funds

livemint.com:

NEW DELHI : Mutual funds may get to invest in companies traded in Gujarat’s Gift City exchanges beyond the normal cap that applies for their overseas investments. The move comes at a time the government is opening up the special economic zone for direct listing of Indian firms. A 16-member expert panel appointed by the International Financial Services Centres Authority (IFSCA) last week recommended a special carve-out for mutual funds wanting to invest in Gift City.

Mint has seen a copy of the report. Currently, any investments made by mutual funds are considered overseas investments, which are subject to various investment limits. The Reserve Bank of India (RBI) allows the entire mutual funds industry to invest up to $7 billion in overseas companies.

Also, no individual fund is allowed to invest more than $1 billion in foreign securities. The expert committee recommendation, if implemented, will ensure that their investments in Indian companies in Gift City are not considered overseas investment and, instead, a separate limit will be put in place for Gift City. To be sure, Gift City currently offers only derivatives trading, and does not have any listed companies.

The government is working to allow Indian firms to list directly from Gift City, before opening up direct overseas listings. The move aims to deepen liquidity in Gift City, given that mutual funds have been a key factor behind the rise of India’s onshore capital markets, where they manage assets of ₹50 trillion. Companies listing in Gift City will help both the special zone and the domestic funds such as mutual funds by providing them greater investment opportunities.