Some light on Qualified Foreign Investors QFI in India

Qualified Foreign Investors (QFIs) is sub category of foreign portfolio investor and refers to any foreign individuals, associations or groups or residents, however restricted to those from a country that is the member of Financial Action task force or a country that is member of FATF and a country.

The main objective of enabling QFIs is to deepen and infuse more foreign funds in Indian capital market and to reduce the volatility as individuals are long term investors as compared to institutional investors.

QFIs are permitted to make investments on following instruments by opening a demat account in any of SEBI approved Qualified depository participant (QDP).
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. Equity and debt schemes of Indian mutual funds

. Equity shares listed on recognized stock exchanges

. Equity shares offered through public offers

. Corporate bonds listed/to be listed on recognized stock exchanges

. G-securities, T- bills and commercial papers

QFIs do not include FIIs/Sub accounts/ foreign venture capital investor.

QFI scheme offers many benefits – Their access to equity market is expected to broad base the market while enhancing the capital flow into India. More importantly as QFIs are enlarge set of heterogeneous investors; their participation is expected to help dampen the volatility in Indian equity market that arises due to sudden inflows or off loadings done by FIIs.

The direct participation route offered by the way of QFI scheme was expected to reduce the transaction cost and complex nature because of large numbers of intermediaries. This in turn brings transparency while reducing the need for using participatory notes way. Also their access to equity market is expected to tackle the investment potential remaining untapped in various sectors.

This major policy decision taken by central government, QFIs can directly invest in Indian equity market will widen the class of investors, attract more foreign funds and minimize market volatility and deepen the Indian capital market. They have also been permitted to have direct access to Indian mutual funds schemes in sync to the budget announcement of 2011-12. As a first step in this direction, QFIs are permitted to have direct access to Indian mutual funds schemes. This scheme is expected to increase depth of Indian market and in combating volatility beside increasing foreign inflows into the country.

Salient features of scheme:

RBI would grant permission to QFIs for investment under portfolio investment scheme route similar to FIIs.

The individual and aggregate investment limit for QFIs shall be 5% and 10% respectively of paid up capital of Indian company.

QFIs shall be allowed to invest through SEBI registered Qualified depository participant (DP). QFI shall open only one demat account and trading account with any of qualified DP. Also purchase and sale of equities can be made through DP only.

DP should ensure that QFIs meet all KYC and regulatory norms as per the regulations issued by SEBI on timely basis.

DP shall be responsible for deduction of application task at source out of redemption proceeds before making redemption payments to QFIs.

Risk management, margins and taxation on such trades by QFIs may be in sync to facility available to other investors.

There are certain rules of the bank, demat and trading accounts for QFIs in India:

They can only open a single, non interest bearing rupee account with an AD category – I bank in India in sync to the terms and conditions formulated under FEMA regulations from time to time.

QDP can operate this single non interest bearing rupee account for all investments made by QFI in India.

All the funds should be received in single non interest bearing rupee account of QFI before execution of purchase order.

At any point of time QFI can open only one demat account with any of qualified DPs. Further, purchase and sale of all eligible securities should be transacted through that demat account only.

QFI can open trading account with more than one stock holder. All the transactions of QFI need to be routed through qualified DP.
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