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What are India specific International mutual funds?

The five India specific funds whose investment details for 1996 and 1998 we will be presenting in the subsequent are :

• India Growth Fund Inc
• India Fund Inc
• Jardine Fleming India Fund Inc
• Morgan Stanley India Investment Fund Inc.; and
• Pioneer India Fund

All the five have diverse investment advisers and the total value of investment in 535 Indian companies in mid-1996 amounted up to US$ 915 mn. The number of companies compares well with the official estimates for1996-97 that FIIs have been vigorous in over 600 scrips out of more than 6,000 listed ones. It has also been indicated that out of the 427 registered at that time, on an average 130 were energetic in any given month and about two-thirds of the purchases and sales were accounted for 25 FIIs. However by 1998, most probably as a fall out of the East Asian crisis, the sanctions following India exploding nuclear devices in May 1998 and the common slow down of the Indian economy, the number of companies in which the funds invested declined and stood at 375.The market value of the assets held by the funds declined to US$ 762 mn. Turn down in the number of companies is common to four of the five funds.

The additional study of trading at BSE showed that out of the nearly 6,000 companies listed at the exchange, the prime 500 companies in terms of market turnover account for over 99 % of the turnover. FII investments have generally restricted to this set of high turnover companies as the share of such companies in the market value of investments amplified from 86 to 98 % between 1996 and 1998. This suggests that FII operations are increasingly confining to liquid shares. By 1998, it is also practical that A Group (Specified) companies, in which carry forward deals are permitted, amplified their share from 68 to 81 %. The share of Sensex (pre- November 1998) the company remained for about one third of the overall value. Although, it is important that the five funds invested practically all the Sensex companies, implying that they operations potentially influence the index. Name and other information related to 25 companies in terms of value for each of the five funds. During the share of foreign – controlled companies (FCCs) in the value of the investment amplified from about 21 – 28%. The share of the public sector companies elevated from 17 to 21 %. Along with the decrease in the number of companies in which the funds invested, the share of the top companies in terms of market value of investment increased subsequently. The share of the top ten companies elevated from about 26 to 45 % and that of top 100% from 77% to about 94%. In all the total value of investment of the five companies is almost concentrated in about 150 companies.

A sector-wise arrangement of the companies, in which the funds have invested shows that there was a most important shift in the investment exposure within two years. Computer software (development and training) group of companies, which was not amongst the top 10 in 1996, reached the top-most position in 1998. Pharmaceuticals sector enhanced its position from the fifth to the third position. Food & Beverages and Personal Care products made their access into the top 10. Major industries that stirred down below the 10th position were: metals and metal products, textiles, cement and electrical machinery.

It may be well-known that at the Bombay Stock Exchange also computer software, food and beverages, pharmaceuticals and personal care products enhanced their position in 1998 compared to 1996. In the same way, trading values showed increased concentration and the number of companies traded declined during the same period. Whereas share of FCCs in the turnover increased, that of Indian large companies declined. The similarity between the allotment of trading values at BSE and exposure of FII investments seem to put forward a strong positive relationship between the two and possible influence of FII investment pattern on trading at BSE. This goes to build up the general termination drawn on the basis of comparison of quarterly net FII investments and movement of the Bombay Stock Exchange Sensitive.

A feature which emerged from the funds' filings is that three out of the five funds claimed tax custody status in Mauritius with which India has entered into double taxation treaty. That this was a simple strategy of tax planning is obvious from the information that one of the funds (India Fund Inc.) reported that: The Fund has recognized a branch in the Republic of Mauritius. ulticonsult Ltd. (the `Mauritius Administrator') provides certain administrative services concerning to the operation and maintenance of the Fund in Mauritius. The Mauritius Administrator receives a monthly fee of $1,500 and is reimbursed for certain supplementary expenses.

The other two funds also paid similar amounts to Multiconsult. The Mauritius Company should merely be lending its address, as, for such undersized amounts, one cannot think of any other professional service. In this environment, from the taxation of profits and capital gains, point of view, the country status described former has little significance. Incidentally, the address of Multiconsult Ltd., is used, apart from India Fund Inc. and Morgan Stanley India Investment Fund Inc., the two additional funds claiming Mauritius residency status, also by such other foreign investors that invested in India and as varied as US West Cellular Investment Co., Chatterjee Petrochem (an NRI company which received endorsement to invest in Haldia Petrochem) and Marconi Telecommunications.

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