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9. '' As a very significant step , SEBI has allowed MFs players to invest in foreign securities including Americian Depository Receipts (ADRs) and Global Depository Receipts (GDRs) under certain conditions.'' In this context , explain the condition for investing in ADRs/GDRs/Foreign Securities.
The Securities and Exchange Board of India (SEBI) has taken several key steps to strengthen the Mutual Fund (MF) Industry during 2005-06. As a very significant step, it has allowed MF Palyers to invest in foreign securities including American Depository Recepits (ADRs), and Gobal Depository Receipts (GDRs) under certain condition . The regulator has also introduced guidelines for the Gold Exchange Traded Funds (GETFs) and capital protection schemes . For GETF, the assets of the scheme have to be kept in the custody of a bank, which is registered with SEBI.However, the scheme is subject to certain investment restrictions. The funds of any such scheme should be invested only in gold or gold-related instruments, in accordance with the investment objective , expect to the extent necessary to meet the liquidity requirements for honoring redemption or repurchase of units as disclosed in the offer document. Since physical gold and other permitted instruments linked to gold are denominated in gold tonnage , it will be valued based on the market price of gold in the domestics market and will be marked to market on a daily basis . The term ''capital protection oriented scheme' means a Mutual Fund scheme that is designated as such and which protects oriented scheme' means a Mutual Fund scheme that is designated as such and which protects the capital invested therein through suitable orientation of its portfolio structure.
Ans: Conditions for Investment in ADRs/GDRs/Foreign Securities are as follow:
a. The Mutual Fund can make investments in-
i. ADRs/GDRs issued by Indian companies.
ii. Equity of overseas companies listed on recognized stock exchanges overseas.
iii. Foreign debt securities in the countries with fully convertible currencies,short-term as well as long-term debt instruments with highest rating (foreign currency credit rating ) by accredited /registered credit rating agencies, say A-1/AAA by Standard & Poor,P-1/AAA by Moody's F1/AAA by fitch IBCA, etc.
iv. Government securities where the countries are AAA rated.
v. Units/securities issued by overseas Mutual Funds or Unit Trust which invest in the aforesaid securities or rated as mentioned above and are registered with overseas regulators.
b. The Mutual Fund can invest in ADRs/GDRs /Foreign securities within overall limit of US$4 billion with a sub-ceiling for individual Mutual Funds , which should not exceed 10% of the net assets, managed by them as on March 31 of each relevant year, subject to a maximum of US $ 150 million per Mutual Fund , according to SEBI's May 2007 circulations.