The government has decided to allow qualified foreign investors (QFIs) to directly invest in the Indian equity market to attract more foreign funds and reduce market volatility, a finance ministry statement said on Sunday. The move will also help in deepening the Indian capital market. QFIs have been already permitted to have direct access to mutual fund schemes in India.

RBI and Sebi will issue the necessary circulars by January 15, the statement said. The cap on investment by QFIs will be 5 per cent of the paid up capital of company and for aggregate investment by QFIs in a company, the ceiling would be 10 per cent of paid up capital, the statement said. Foreign capital inflows have grown in importance over the years and these have been influenced by strong domestic funda­mentals and buoyant yi­elds, reflecting robust corporate sector performance.

At present, only foreign institutional investors and their sub-accounts and NRIs are allowed to directly invest in the Indian equity market.

Now, a large number of qualified foreign investors (QFIs), in particular, a large set of diversified individual foreign nationals can also invest in the Indian equity market. After allowing QFIs to directly invest in the Indian mutual fund schemes in October, the next logical step was to allow QFIs to directly invest in the Indian equity market.

The QFIs include individuals, groups or associations, resident in a foreign country, which is in compliance with FATF and that is a signatory to IOSCO’s multilateral MoU. QFIs do not include FII or their sub-accounts. Following the decision, Reserve Bank of India would grant general permission to QFIs for investment under portfolio investment scheme (PIS) route, similar to FIIs. These limits shall be over and above the FII and NRI investment ceilings prescribed under the PIS route for foreign investment in India. QFIs will be allowed to invest through a Sebi-registered qualified depository participant (DP).

A QFI will 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.

The DP will ensure that QFIs meet all KYC and other regulatory requirements, as per the relevant regulations issued by Sebi from time to time. QFIs will 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.

The 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.

krsudhaman

@mydigitalfc.com