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Indian Financial System

Notes 2. Offshore funds represent mutual funds with investments source abroad. Thus, subscription
to these funds is mobilized from international financial markets for its investment in the
economies and capital market instruments of specific country (ies). These funds are cross
border instruments facilitating capital movement of investible surpluses from cash rich
countries to high growth or potentially high growth economies of the world. Kotak
Global India Fund, SBI's Magnum Global and Global opportunity fund are few examples
of overseas funds.
Indian mutual funds have been permitted to invest in foreign debt securities in countries
with fully convertible currencies. In the recent past, mutual funds have also been permitted
to invest in equity shares of listed overseas companies having shareholding of at least
10 percent in an Indian company listed on a recognized stock exchange in India.

Thus, a host of mutual funds have come into existence to garner savings from the savers
for investment outside the country. Such kind of mutual funds are called 'Overseas' funds.
There are three types of overseas funds, viz., global funds, international funds and country
funds. While global funds invest in the domestic funds as well as foreign stocks and bonds,
international funds invest strictly in foreign countries. Country funds invest in the stocks
and bonds of a particular country or region.
The basic idea underlying formation of overseas mutual funds is to exploit the bright
investment opportunities abroad and thereby augment the fund's overall rate of return.

Did u know? Role of the mutual funds is not limited to domestic sphere only. In addition to
attracting domestic savings, these funds can offer their units abroad and attract foreign
capital just as UTI has recently done by offering India Fund, India Growth Fund schemes.
Similarly, they may serve as useful institutions for securing profitable investment avenues
abroad for domestic savings. Investment in foreign industrial securities requires fairly
detailed knowledge of the state of the foreign economy in general and of industries in
particular as also of fiscal position of industrial enterprises and their future prospects. As
a result, despite attractive investment of prospects abroad for surplus domestic savings,
individual investors would find it an extremely difficult task to make foreign investment
on their own. Mutual funds have, as in the case of domestic investment, stepped in to solve
these problems for the savers.

13.3 Significance of Mutual Funds

Mutual funds are financial intermediaries concerned with mobilizing savings of those who
have surplus income and channelisation of these savings in those avenues where there is demand
of funds. These institutions employ their resources in such a manner as to afford for their
investors the combined benefits of low risk, steady return, high liquidity and capital appreciation
through diversification and expert management.
Savers of moderate means in underdeveloped regions are generally reluctant to invest in corporate
securities because of their lack of adequate knowledge about complicated investment affairs.
Moreover, their resources being small, they can at best hold securities of one or two or just a few
industrial concerns only and as such, the fate of their savings and prospects of earnings therefrom
are tied to the fate of such unit or units. Investment in securities of mutual funds takes care of
both these problems, for such investment, in effect, represents a part of the funds' entire portfolio
diversified in terms of securities, units, industries and geographical regions. These institutions
employ expert investment analysts and thus professional knowledge and expertise go into the
selection and supervision of their investment portfolio. Diversification and expert investment
knowledge ensure steady and regular earnings to the fund and a share in the general prosperity.

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