| Asset
Management Companies keen to outsource non-core
activity |
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Fund administration involves
fund accounting and requires specialised skills
that may not always be available with the custodians.
However, according to the Reserve Bank of India,
(RBI), guidelines, custodial services and fund
administration cannot be de-linked and have to
be bundled and offered as a total package. So
the fund houses have no choice but to offer fund
administration activity to their custodial services
partner or do it in-house.
At present only Deutsche Bank and J P Morgan Chase
Bank have the sufficient expertise to cater to
this particular demand. Interestingly, regulations
by the Securities and Exchange Board of India,
(SEBI), are largely silent on the issue of fund
administration, though there are detailed guidelines
on custodial services.
At present, only a handful
of asset management companies - Deutsche AMC,
HSBC AMC, ABN Amro AMC and Birla Sun Life AMC
- outsource their fund administration activities
while the rest in the industry are presumably
waiting to see how the others fare before making
a move in that direction.
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Our Say |
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| This
is a very interesting development in
India’s AMC sector which currently
manages assets worth over $ 31 bln.
A multinational fund house, setting
up its operations here, would definitely
like to focus on its core activity of
investment management and outsource
the rest of its peripheral activity.
In addition, new entrants would like
to keep their staff expenses low.
Outsourcing
of fund administration is also far more
efficient and cost effective in the
long run, since it saves on staff costs
and salaries - expenses that can be
better utilised by the fund house. Further
it leads to a more uniform way of accounting
since, at present there is no standardised
accounting procedure across different
mutual funds.
Funds
would ideally like a wider choice of
outsourcing agencies, but due to the
regulatory regime they have to stick
with a few players.
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| Mutual
Funds may be allowed to invest abroad |
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| To start with,
a proposal to allow mutual funds to float special
schemes, where a part of the corpus can be invested
abroad, is being considered. Officials said the
new scheme under consideration will fall under a
pending proposal mooted by former finance minister
Jaswant Singh on allowing Indians to invest up to
$ 25,000 abroad annually.
Although it was
meant to apply to all classes of assets without
restrictions, outflows were actually allowed only
for deposits and hence in the absence of investment
guidelines, no significant off-shore investments
have taken place so far. In addition, Mutual Funds
can presently, only invest in companies that have
a 10% stake in an Indian entity. This has restricted
the number of available stocks to about 50-odd companies
and some of the best global stocks do not get covered
due to this stipulation.
Officials,
however, clarified that unlike the old scheme that
amounted to full capital account convertibility
of up to $ 25,000, the new liberalisation will come
with riders attached.
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