IMF asks India to set up pvt MF for overseas investments

By agencies   |   Monday, 14 November 2005, 20:30 IST
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NEW DELHI: The International Monetary Fund has asked India to set up closed-end, privately controlled funds to invest abroad to earn better returns for their investments. In a recent paper the chief economist of the International Monetary Fund (IMF), Raghuram Rajan and senior economist Eswar Prasad said that such a move would precvnt the central bank from converting a large part of their funds in dollars. This would not only help domestic investors get higher returns by being able to invest overseas, it would also retain the government’s control over the capital account. This would ensure protection against sudden capital outflows and yet make the economies move towards greater foreign exchange flexibility, the duo said. The paper has proposed that the central bank could either license a private fund management company, or use a foreign fund manager to start the closed-end MF. The fund would raise money by issuing shares to domestic investors in the local currency and then use the proceeds to purchase foreign exchange from the central bank for investing in overseas stocks and bonds.