Qualified Foreign Investors (QFIS) Allowed to Access Mutual Fundsí Equity Schemes and Debt Schemes in the Infrastructure Sector
August 9, 2011: In order to further liberalize the portfolio investment route, the Union Finance Minister Shri Pranab Mukherjee had announced in the 2011-12 Budget to permit SEBI registered Mutual Funds (MFs) to accept subscriptions for equity schemes from foreign investors who meet the Know Your Customer/client(KYC) requirements.
The scope of the budget announcement has now been expanded to allow SEBI registered Mutual Funds to accept subscriptions from foreign investors for debt schemes in the infrastructure sector. This is the first recommendation from amongst those that were made during the FM-industry meet to be implemented.
SEBI and RBI have issued circulars today to allow Qualified Foreign Investors (QFIs) access to Mutual Fundsí equity schemes and debt schemes in the infrastructure sector.
QFI is an individual, group or association, resident in a foreign country that is compliant with Financial Action Task Force (FATF) standard and that is a signatory to International Organization of Securities Commission's Multilateral Memorandum of Understanding. QFIs do not include Foreign Institutional Investors or Sub-accounts as these are already permitted to invest in Equity and Debt markets in India as per the extant guidelines of SEBI and RBI.
Two routes have been prescribed for QFIs investment:
(I) Direct route: QFI would hold MF units in demat account through SEBI registered depository participant (DP). There are three parties under this route - QFIs, qualified DP and MF. A QFI can open only one demat account with any one of the qualified DPs and shall subscribe and redeem through that DP only. The QFI shall place a purchase order of MF scheme with its DP, DP in turn forwards the order to the concerned MF, MF shall process the order and credit units into the demat account of QFIs.
(II) Indirect route: QFI would hold MF units via Unit Confirmation Receipts (UCR). There are four parties under this route - QFIs, UCR issuer (based overseas), SEBI registered Custodian (based in India) and MF. QFIs can subscribe / redeem only through the UCR Issuer. UCR issuer would be appointed by MFs for which MF shall seek no objection from SEBI before appointing any UCR issuer. QFIs shall place a purchase order through UCR issuer. UCR issuer shall forward the order of QFIs to the MF/custodian. The MF shall issue the units to custodian and custodian in turn confirm to UCR issuer to issue UCRs corresponding to MF units held by custodian.
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