| Qualified Foreign Investors (QFIS) Allowed to Directly Invest in Indian Equity Market; Scheme to Help Increase the Depth of the Indian Market and in Combating Volatility Beside Increasing Foreign Inflows into the County |
In
a major policy decision, the Central Government has decided
to allow Qualified
Foreign Investors (QFIs)
to directly invest in Indian equity market
in order to widen the class of investors, attract more foreign funds, and
reduce market volatility and to deepen the Indian capital market. QFIs
have been already permitted to have direct access to Indian Mutual Funds
schemes pursuant to the
Budget announcement 2011-12. Today’s decision is a next logical step in the
direction.
Foreign
Capital inflows to
In
the present arrangement relating to foreign portfolio investments,
only FIIs/sub-accounts and NRIs are allowed to directly invest in Indian
equity market. In this arrangement, a
large number of Qualified Foreign Investors (QFIs), in particular, a
large set of diversified individual foreign
nationals who
are desirous of investing in Indian equity market do
not have direct access to Indian equity market. In
the absence of availability of direct route, many QFIs find difficulties in
investing in Indian equity market.
As
a first step in this direction, QFIs have been permitted direct access to
Indian Mutual Funds schemes pursuant to the
Budget announcement 2011-12. As a next logical step, it
has now been decided to allow QFIs to directly invest in Indian equity market
in order to widen the class of investors, attract more foreign funds, and
reduce market volatility and to deepen the Indian capital market.
The
QFIs shall include individuals,
groups or associations, resident in a foreign country which is compliant with
FATF and that is a signatory to IOSCO’s multilateral MoU. QFIs do not
include FII/sub-accounts.
Salient
Features of the Scheme:
·
RBI
would grant general permission to QFIs for investment under Portfolio
Investment Scheme (PIS) route similar to FIIs.
·
The individual
and aggregate investment limit for QFIs shall be 5% and 10% respectively of
the paid up capital of Indian company. These limits shall be over and above
the FII and NRI investment ceilings prescribed under the PIS route for foreign
investment in India.
·
QFIs shall be
allowed to invest through SEBI registered Qualified Depository Participant
(DP). A QFI shall open only one demat account and a trading account with any
of the qualified DP. The QFI shall make purchase and sale of equities through
that DP only.
·
DP shall ensure
that QFIs meet all KYC and other regulatory requirements, as per the relevant
regulations issued by SEBI from time to time.
QFIs shall remit money through normal banking channel in any permitted
currency (freely convertible) directly to the single rupee pool bank account
of the DP maintained with a designated AD category - I bank. Upon receipt of
instructions from QFI, DP shall carry out the transactions (purchase/sale of
equity).
·
DP shall be
responsible for deduction of applicable tax at source out of the redemption
proceeds before making redemption payments to QFIs.
·
Risk
management, margins and taxation on such trades by QFIs may be on lines
similar to the facility available to the other investors.
The
scheme is expected to help increase the depth of the Indian market and in
combating volatility beside increasing foreign inflows
into the county.
SEBI
and RBI are expected to issue relevant circulars to operationalise the scheme
by January 15, 2012.
DSM