Date:05/06/2005 URL: http://www.thehindubusinessline.com/2005/06/05/stories/2005060501610100.htm

Back $25,000 overseas investment facility finds no rush yet

Veena Venugopal

Mumbai , June 4

THE carrot of foreign investments has been dangling for over a year now, but investing abroad is proving to be a moving target for Indian investors. Though the then Finance Minister, Mr Jaswant Singh, announced in January 2004 that foreign remittance of $25,000 would be allowed per year , investors are yet to warm up to it because of various regulatory and other concerns.

Between the 11 banks that have opened accounts with the Reserve Bank of India to allow their customers to invest their $25,000 abroad, only about 400 customers are understood to have availed themselves of this facility. Banks and financial advisors point out many lacunae in easy remittance abroad.

Share purchase abroad has to continue to adhere to an earlier rule that allows Indians to invest only in those companies that have a listed subsidiary in India and where the parent company holds at least 10 per cent in the Indian subsidiary.

Investments in real estate abroad have also been rendered ineffective, as it is nearly impossible to buy property for $25,000 anywhere in the world. Further, RBI has also published a list of countries where investments are not allowed. This includes the Philippines, Indonesia and Egypt, among others, as on March 2005.

Though the mutual fund industry has suggested to the Securities and Exchange Board of India the introduction of `feeder funds' to allow Indians to invest in international mutual funds, the market regulator is yet to act on this suggestion. The report has been pending with SEBI for over a year now.

These restrictions have come about despite the fact that at the time of announcement of the facility, the circular said that Indians could remit an amount of up to $25,000 per year for any purpose.

Further, these restrictions leave a very narrow range of products that fall under the gamut of possible investment areas. Real Estate Investment Trusts (REITs) are the best bets, as this product category is not currently available in India.

Once these are introduced, then with the anticipated rate of growth, Indian REITs are expected to outperform foreign ones. This leaves only certain kinds of insurance products, such as insurance against being laid-off by the employer, that remain as possible areas of investment, said a financial advisor.