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QFIs permitted to invest directly in equity market

9th January, 2012

Qualified Foreign Investors (QFIs) have been permitted to invest directly in the Indian equity market. This major policy decision by the government is aimed at attracting further foreign funds. The recent plunge in equity markets, valuation losses and dimming of enthusiasm among Foreign Institutional Investors (FIIs) are seen as the reasons behind this move. QFIs are permitted to invest in equity and debt schemes of mutual funds since August, 2011.

The SEBI circular issued in this regard  also sought to ensure that QFIs meet the KYC requirements as per the Financial Action Task Force (FATF) standards, Prevention of Money Laundering Act, 2002 (PMLA) and rules and regulations made thereunder. The press release on direct investment by QFIs issued by the Ministry of Finance states that QFIs shall include individuals, groups or associations, resident in a foreign country which is compliant with FATF and that is a signatory to IOSCO’s multilateral MoU.

An aggregate investment limit of 10% of the paid up capital of Indian company and individual investment of 5% on the paid up capital of the Indian company have been set out. These limits would be over and above the FII and NRI investment ceilings prescribed under the PIS route for foreign investment in India. SEBI and RBI will issue the relevant circulars to operationalise the scheme by 15-1-2012. 

QFIs shall be allowed to invest through SEBI registered Qualified Depository Participant (DP). A QFI shall 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 only. DP shall be responsible for deduction of applicable tax at source out of the redemption proceeds before making redemption payments to QFIs.
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