Amendments in provisions of investments by Qualified Foreign Investors (QFI) in Equity Shares and Mutual Fund Schemes - Corporate Professionals

Jun 9, 2012

Amendments in provisions of investments by Qualified Foreign Investors (QFI) in Equity Shares and Mutual Fund Schemes

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Amendments in provisions of investments by Qualified Foreign Investors (QFI) in Equity Shares and Mutual Fund Schemes
In its latest circular dated 7th June 2012 bearing no. CIR/IMD/FII&C/13/2012, the Securities & Exchange Board of India has, in consultation with the Government of India and Reserve Bank of India, amended its earlier provisions with respect to investments by Foreign Investor in Indian Capital Markets through equity shares and mutual funds.
The amendments so made are summarized herein below:
1.	Definition of QFI
	The definition of QFI has been amended to include the Resident of countries that are member Financial Action Task Force (FATF) or a member of a group which is a member of FATF. Though the countries listed in public statements issued by FATF from time to time w.r.t. combating anti-money laundering and financing of terrorism are excluded. The definition is to further include the Residents of countries which are signatory of bilateral MOU with SEBI. *The remaining provisions like person should not be resident of India, should not be registered as FII or Sub- Account or FVCI etc. remains the same.*
2.	As per the earlier circulars in this respect, the limit of QFI investment in a Company had been fixed to 5% of the paid up equity capital of the Company at any point of time. By the present circular, it is further clarified that if a person invest in same company through both QFI route and FDI route, then also the aggregate holding of the person in such company should not increase 5% of the paid up equity capital of the Company at any point of time or such limits as may be amended by RBI or GOI from time to time.
3.	SEBI has further allowed QFI to make fresh purchases of eligible securities out of sale, or redemption proceeds or dividend of eligible securities. Earlier only equity shares were allowed to be purchased out of proceeds of dividends or sale of equity shares.
4.	The eligible securities have been defined to include mutual fund units, (under direct as well as indirect route), equity shares, corporate debts and other such securities as may be allowed by RBI or GOI from time to time.
5.	All the eligible securities are required to be held in single demat account of QFI.
6.	QFIs have been also allowed to appoint custodian of securities (which is qualified DP and registered as custodian with SEBI) for handling clearing and settlement of securities.
7.	In amendment to the earlier circulars and removing the duplicity, qualified DPs are now exempted from opening and maintenance of single rupee pool bank account. Now only a QFI is required to have a single non-interest bearing Rupee Account with an AD Category-I bank in India.
	CP Comments:
	The Government of India had announced this new provision of QFI Investment directly into Indian equity market in order to widen the class of investors, attract more foreign funds and reduce market volatility. However, till date no major impact could be seen and hence SEBI has reviewed and broaden the scope of this facility in consultation with RBI and the Government of India. One of the major change brought in by this SEBI circular in widening the definition of QFIs by including the residents of countries which are members of FATF as well as countries which are signatory to bilateral IOSCOâ€™s MOU. Earlier only the Residents of countries which were signatory to IOSCOâ€™s Multilateral MOU were allowed to trade as QFIs. Further the definition of eligible securities has also been widened substantially. The successful effort is made to remove the ambiguities and easing the provisions by removing some duplicity. On the whole the attempt is towards boosting foreign investments in the country through capital markets. With wider participation and better choices of instruments for foreign investors,. it can be expected that these provisions shall bring new impetus to the sluggish Stock Market and enhance investment sentiment.

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