The ministry has now excluded mutual funds from the investment vehicles tag reverting them to the original status.
In what has come as a New Year cheer to the sector, the Finance Ministry notified that mutual funds (MFs) will no longer be categorised as foreign investors.
The gazetted notification issued in December exempts fund houses from sectoral caps for foreign direct investment (FDI) and various filings under the Foreign Exchange Management Act (FEMA), as per a Mint report.
This reverses the October circular which categorised MFs with over 50 percent foreign shareholding as investment vehicles, a change which would have forced several equity asset managers to freeze investment activity and even sell their holdings.
There was much pushback as the October circular would ironically have counted retail domestic money invested in the schemes of foreign-owned mutual funds as “foreign money”. For instance, if a company is allowed 74 percent foreign shareholding under FDI rules, any investment in it by an Indian mutual fund with more than 50 percent foreign shareholding would have been considered part of the 74 percent cap.
Major fund houses such as Nippon, Franklin Templeton, Mirae Asset, Invesco, BNP Paribas, HDFC and ICICI Prudential were likely to be impacted. Listed companies with sectoral caps in industries such as private banking, broadcasting, telecom, single brand retail, brownfield pharma, insurance and infrastructure would have faced serious selling pressure too.The reversal comes after representations from various fund managers and the Securities and Exchange Board of India (SEBI).Not sure which mutual funds to buy? Download moneycontrol transact app to get personalised investment recommendations.