Hedge funds have been investing in Indian markets through the participatory note. However, of late, Sebi has expressed its interest to allow the hedge funds to directly operate in the Indian markets. The article analyzes the underlying issues before the regulators and the financial institutions. The changing face of Indian
economy and the aggrandizing
requirement of trade across
the borders have necessitated funds
from overseas through various means.
Hedge fund is one such means
through which the foreign investors
can invest in India. Of late, Sebi has
showed a welcome gesture by nodding
to allow hedge funds in India subject
to certain conditions. It sounds quite
positive in its opinion about the nature
and performance of hedge funds.
It supports its decision to welcome
hedge funds with the observation that
many of the insurance companies,
banks and pension funds around the
world are actively participating in the
hedge funds, as the fund lures with a
promise of heavy returns. Hedge
funds have been playing a crucial role
in the Indian economy for quite some
time now. As per statistics, the funds
have invested about Rs. 8,050 cr in
India which account for 8% of the total
FII net investment as of March 2004.
On the role of hedge funds in India in
the years to come, Krishnamurthy
Vijayan, CEO, JM Mutual Fund, says,
“Hedge funds in India largely participated
in the cash-futures arbitrage
which provided them a cost of carry of
about 12-15% over the last one year.
With an appreciating rupee, the effective
returns were much higher at
about 18-20%. Going ahead, we can
expect selective exposure by hedge
funds into direct equity positions.”
Hedge funds on the global front are
the financial instruments privately
held and largely unregulated investment
pools specially meant for the
high net worth or accredited1 investors.
Such funds do not face the obligation
of registering with any governing
bodies such as the Securities and Exchange
Commission (SEC). |
