Investment in India

UNIT TRUST OF INDIA Unit Trust of India (UTI) was established by an Act of Parliament to encourage and mobilise savings of small investors through the sale of Units, and to channelise these resources into corporate securities. Over the years, it has rapidly grown and diversified to be an important part of Indian Financial System. The sale of units of UTI under all schemes aggregated to Rs 14,000 crore during 1998-99 as against Rs 11,200 crore during 1997- 98. Size and complexity of UTIs operations are reflected in an asset portfolio of over Rs 55,200 crore and investor base of about 450 lakh investor accounts; a distribution network of 52 branch offices; an array of 79 attractive and innovative savings plans/funds; and portfolio exposure in various companies covering all major profitable companies in the public, private, joint and financial sectors. UTI is major investor in Government Securities and Money Market Instruments. During 1998-99 (up to April 1999), the financial assistance sanctioned and disbursed by UTI aggregated to Rs 3,797 crore and Rs 2,396 crore respectively. UTIs investment in the corporate sector is in the form of equity and preference shares, debentures, term loans and special deposits. UTI launched the first Indian off-shore fund. The India Fund. (listed on the London Stock Exchange) in July 1986 and the second fund called The India Growth Fund Inc. was launched in August 1988 which is listed on the New York Stock Exchange. In February 1997 UTI launched The India Access Fund which is the first off-shore India Index fund, which replicates the performance of the NSE-50 index. In June 1997, UTI also launched the first off-shore debt fund India Debt Fund, sector fund India Information Technology Fund and India Public Sector fund. India Information Technology Fund was ranked Number One in its category by the Lipper International for CY 1998. UTIs international exposure includes its support to the development of the Unit Trusts in other developing countries like Sri Lanka, Bhutan and Egypt providing technical advice as well as participationin the equity capital. Towards creating a diversified financial conglomerate and meeting investors varying needs under a common umbrella, UTI has set up a number of associate companies in the field of banking, securities trading, investor servicing, investment advise and training. The companies and organisations in the UTI group are (i) UTI Bank Limited (1994) - the first private sector bank set up under RBI guidelines; (ii) UTI Securities Exchange Limited (1994) - the first institutionally sponsored corporate stock-broking firm; (iii) UTI Investor Services Limited (1993) - the first institutionally sponsored Registrar and Transfer agency; (iv) UTI Institute of Capital Markets (1989) - the first such Institute in Asia, excluding Japan; and (v) UTI Investment Advisory Services Limited (1988) - the first Indian Investment Advisor registered with SEC (USA). Besides, UTI (Guernsey) Limited is a wholly-owned subsidiary incorporated in Guernsey and has an office in London, UK. UTI plans to introduce new products with emphasis on performing and turn around sectors. UTI launched a Growth Sector Fund in May 1999 comprising a Brand Value Fund, Pharma and Healthcare Fund, Software Fund, Services Sector Fund and Petro Fund with facility of switching

from one fund to another for Domestic and NRI investors. UTI is planning an Infrastructure Fund for International investors. UTI also plans to enter insurance and pension fund business. FOREIGN CAPITAL MOBILISATION THROUGH EURO ISSUES (GDR/ FCCB) A scheme has been initiated during 1992 to allow the Indian Corporate Sector to have access to the Global Capital markets through issue of Foreign Currency Convertible Bonds (FCCBs)/Equity Shares under the Global Depository Mechanism. Under this scheme, companies with consistent track record of good performance(financial or otherwise) for minimum period of three years can have access to international capital market. The three year track record requirement has been relaxed for companies making Euro issues for financing projects in the infrastructure sector like power generation, telecommunication, petroleum exploration and refining, ports,airports and roads. Euro issues by companies to finance activities which are predominantly within Annexure III of the New Industrial Policy with foreign equity holding inclusive of the likely foreign equity through Euro issues within 51 per cent would be considered and cleared by the Department of Economic Affairs. Cases involving funding of activities outside Annexure III and also where foreign equity holding after the Euro issue is likely to exceed 51 per cent would require FIPB approval after an in principle approval by the Department of Economic Affairs. Comprehensive guidelines for Euro issues were announced on 19 June 1996 which provide for greater flexibility to Indian companies to access the global market through GDR/ADR/FCCB issues. Indian corporates have successfully launched 91 Euro issues in the international markets, raising an amount of about US $ 8332.02 million + S Fr. 172 million. The Government had announced relaxation in guidelines for GDR/ADR issues by Indian Companies during 1998-99. PORTFOLIO INVESTMENT FROM FOREIGN INSTITUTIONAL INVESTORS A scheme for attracting portfolio from Foreign Institutional Investors (FIIs) has been operational since September 1992. Under this scheme, FIIs including institutions such as Pension Funds, Mutual Funds, Investment Trusts, Asset Management Companies, Nominee Companies and Incorporated/Institutional Portfolio Managers or their power of attorney holders are allowed to invest in all the securities traded on the primary and secondary markets. Such securities would include shares, debentures and warrants issued by companies listed/to be listed on the Stock Exchanges in India and the schemes floated by domestic mutual funds. FIIs are permitted to invest in Government securities including Treasury Bills. FIIs who register themselves as Debt Funds with SEBI are permitted to make 100 per cent of their investments in Debt securities of Indian companies. FIIs are required to obtain an initial registration with the Securities and Exchange Board of India (SEBI). They also need to obtain certain permissions under FERA from the RBI through an application routed through SEBI under a single window approach. For granting registration to the FII, SEBI takes into account the track record of the FII, its professional competence, financial soundness, experience and such other criteria that may be considered relevant. There are no

restrictions on the volume of investments by the FIIs. There are no lock-in periods prescribed for such investments made by the FIIs. FIIs have also been allowed to take exchange cover for a portion of their investment exposure. The net FII investment flowing into the country as on 11 May 1999 amounted to US dollar 9.265 billion. NON-RESIDENT INDIAN INVESTMENTS Recognising the investment potential of the Non-resident Indians, a number of steps have been taken by the Government to attract investments from them in Indian companies. Some of the investment schemes presently available to Non-resident Indians (NRIs) include the facility to invest up to 100 per cent equity with full benefits of repatriation of capital invested and income accruing thereon in high priority industries mentioned in Annexure - III to the Industrial Policy 1991, 100 per cent export oriented units, sick units under revival, housing and real estate development companies, etc. INITIATIVES TO ATTRACT NRI INVESTMENTS The announcements made in the Budget 1999-2000 are: (a) The facility of automatic approval for investment up to 100 per cent by NRIs/PIOs/OCBs to be extended to all items except: (i) those which attract notified FDI equity caps; (ii) items covered by compulsory licencing; (iii) items reserved for public sector under the industrial policy; and (iv) items reserved for the small scale sector. Presently 100 per cent NRI investment is permissible under the RBI simplified route only in areas covered by expended Annexure-III to the Industrial Policy 1991. Cases which fall outside these areas require case by case FIPB approval. Guidelines/operational details being worked out in consultation with the Ministry of Industry and the Reserve Bank of India. (b) Extension of screen-based automated trading in securities overseas through opening of trading terminals abroad to facilitate direct participation of NRIs in the Capital Markets. Modalities are being worked out by SEBI; (c) Simplification of NRI investments in the Indian mutual funds. The existing procedure involves specific RBI permission to Mutual Funds after the MFs obtain SEBI registration for issue of units to NRIs/PIOs/OCBs. Substitution of this procedure of RBI prior permission with general permission to Mutual Funds subject to certain specified norms for issue of units is being worked out by RBI; (d) In order to ensure that the approvals for foreign investments are quickly translated into actual investment inflows and proposals fructify into projects, it has been proposed to create a Foreign Investment Implementation Authority (FIIA) within the Ministry of Industry which would also include representation from State governments. This would also favourably impact NRI investment proposals; and (e) In all cases where FIPB clearance is involved, it has been decided to reduce the approval time by FIPB to 30 days. Source: www.tourindia.com