Government of India (“GOI”) has permitted QFIs to invest directly into Indian equity market, under the Portfolio Investment Scheme (“PIS”), in addition to Foreign Institutional Investors (“FIIs”)/ sub-accounts and Non Resident Investors (“NRIs”). Till now, QFIs (as defined by SEBI and RBI circular dated 9 August 2011 on QFIs) were permitted to directly invest only in Indian Mutual Fund schemes on repatriation basis.
QFIs will include individuals, groups or associations, resident in a foreign country which is compliant with The Financial Action Task Force (“FATF”) and that is a signatory to the International Organization of Securities Commissions (IOSCO) multilateral MoU. FIIs / sub- account of FII are to be excluded from QFIs.
Salient features
The salient features of the above announcement by GOI are as follows:
RBI will grant general permission to QFIs for investment under the PIS route with an individual investment limit of 5% and an aggregate investment limit of 10% of the paid up capital of the Indian Company. These limits shall be over and above the FIIs and NRIs investment ceilings prescribed under the PIS route for foreign investment in India.
QFIs will be allowed to invest only through SEBI registered Qualified Depository Participant (“DP”) and will be permitted to open only one demat account and a trading account with any of the qualified DP. QFIs shall make purchase and sale of equities only through that DP.
QFIs will need to meet all KYC and other regulatory requirements as prescribed in the relevant regulations issued by SEBI from time to time and shall remit money through normal banking channels.
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 similar to the facility available to the other investors.
SEBI and RBI have been directed by GOI to issue relevant circulars such that the above announcement is operationalized by 15 January 2012.
Conclusion
The scheme is expected to widen the class of investors, attract more foreign funds, reduce market volatility and would help in increasing the depth of the Indian capital market. One would have to examine the detailed circulars to be issued by RBI and SEBI to operationalize the proposal.
QFIs will include individuals, groups or associations, resident in a foreign country which is compliant with The Financial Action Task Force (“FATF”) and that is a signatory to the International Organization of Securities Commissions (IOSCO) multilateral MoU. FIIs / sub- account of FII are to be excluded from QFIs.
Salient features
The salient features of the above announcement by GOI are as follows:
RBI will grant general permission to QFIs for investment under the PIS route with an individual investment limit of 5% and an aggregate investment limit of 10% of the paid up capital of the Indian Company. These limits shall be over and above the FIIs and NRIs investment ceilings prescribed under the PIS route for foreign investment in India.
QFIs will be allowed to invest only through SEBI registered Qualified Depository Participant (“DP”) and will be permitted to open only one demat account and a trading account with any of the qualified DP. QFIs shall make purchase and sale of equities only through that DP.
QFIs will need to meet all KYC and other regulatory requirements as prescribed in the relevant regulations issued by SEBI from time to time and shall remit money through normal banking channels.
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 similar to the facility available to the other investors.
SEBI and RBI have been directed by GOI to issue relevant circulars such that the above announcement is operationalized by 15 January 2012.
Conclusion
The scheme is expected to widen the class of investors, attract more foreign funds, reduce market volatility and would help in increasing the depth of the Indian capital market. One would have to examine the detailed circulars to be issued by RBI and SEBI to operationalize the proposal.
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