Finance Ministry exempts mutual funds from foreign investor

The finance ministry has recently allowed exemptions to mutual funds from being categorized as foreign investors. The status would have subjected them to foreign direct investment (FDI) sectoral caps and various Foreign Exchange Management Act (Fema) rules.

In a circular, the finance ministry had categorized mutual funds with more than 50% foreign shareholding as investment vehicles. This would come as a change forcing some equity asset managers to freeze investment activity and even sell their holdings.

The ministry through a notification amended and removed the requirement, exempting mutual funds from the circular. The foreign funds will need to make additional disclosures on their activities in terms of investment. A source said that mutual funds are not treated as foreign entities under Fema.