The $10-billion investment ceiling is meant for a new category of qualified foreign investors or QFIs. These cover individuals, companies and pension funds that are neither non-resident Indians (NRI) nor foreign institutional investors (FIIs) and their sub-accounts registered with SEBI.
The creation of a separate QFI category would basically help broaden the class of foreign investors who could participate in the Indian equity markets. Currently, foreign nationals, other than NRIs, are not permitted to invest directly in Indian markets. But now it is proposed to enable them to do so, albeit through the mutual fund route.
The $10-billion ceiling is an annual cap to start with, which will be reviewed after six months. “SEBI would, by August 1, formulate guidelines to regulate investment by QFIs in equity schemes of mutual funds,” said Mr Thomas Mathew, Joint Secretary (Capital Markets) in the Finance Ministry.
QFIs can buy into mutual fund schemes through two routes — depositories already operating in their countries or by opening an account with an Indian depository participant. These are generally described as the Unit Confirmation Receipt (UCR) and the direct/Depository Participant (DP) routes. The DP concerned as well as the mutual fund would, in turn, have to ensure that the QFI meets the KYC (know your customer) norms to be specified by SEBI, Mr Mathew added.
SEBI to be regulator
The Finance Ministry official clarified that SEBI would be the sole regulator for all investments coming in through both the routes.
Seeking to dispel concerns of the QFI route becoming a new avenue for money-laundering, Mr Mathew said that the eligibility to invest would be extended only to QFIs from countries that are Financial Action Task Force- compliant and with which SEBI has signed MoUs under International Organisation of Securities Commissions.
The idea of allowing QFIs to invest in domestic mutual fund schemes was originally proposed by the Finance Minister, Mr Pranab Mukherjee, in the 2011-12 Budget.
Source: http://www.thehindubusinessline.com/features/investment-world/mutual-funds/article2139471.ece
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