Foreign pension funds, trusts and individuals, termed Qualified Foreign Investors (QFIs), can now directly invest in domestic mutual funds. However, QFIs will not include foreign institutional investors (FIIs) or sub-accounts, as these are already permitted to invest in mutual funds.
According to a Government announcement on Monday, QFIs can invest up to $10 billion in equity schemes, while for debt mutual funds there will be an addition limit of $3 billion. There will be no limit for one investor or one scheme. Market regulator, Securities and Exchange Board of India and the Reserve Bank of India have already issued separate guidelines in this regard.
The announcement comes at a time when FIIs are pressing the panic button following the downgrade of US sovereign rating, the Eurozone debt crisis, and domestic market volatility. However, it is part of the implementation of the Budget announcement, though with some additions. It is also the first fulfilment of promises made by the Finance Ministry to top industrialists on August 1.
A senior Finance Ministry official said that earlier the Government was planning to allow such investments only in equity schemes. It changed its mind after a meeting with top industrialists such as the ADAG Chairman, Mr Anil Ambani, the GMR group Chairman, Mr G M Rao, the GVK group Chairman, Mr G VK Reddy; and the Essar group Chairman, Mr Shashi Ruia, who pitched for longer investments. Hence, debt schemes were added into the plan, with additional limits, he said.
The guidelines stipulate that once the investment limit of $8 billion in equity schemes and $2.5 billion in debt schemes is achieved, the regulators will auction the remaining amount. Also, QFIs can invest in rupee-denominated units of equity schemes of domestic MFs by taking two routes – the Direct Route as a SEBI-registered Depository Participant or the Indirect Route, by opting for Unit Confirmation Receipt.
Investors will also have to fulfil the “Know Your Customer (KYC)” norms. The Central Board of Direct Taxes will issue a separate form for PAN and KYC for the QFIs, the official said.
Individuals and organisations from 80 countries, compliant with the Financial Action Task Force standard and signatories to the International Organisation of Securities Commission, will now be eligible to invest as QFIs.