SEBI recently permitted Qualified Foreign Investors (QFIs) to invest in India without too many regulatory restrictions. The RBI has further allowed QFIs to invest up to $ 1 billion in the corporate bond market and debt schemes of mutual funds without any lock-in period. Earlier only FIIs, their sub-accounts, and NRIs were allowed to directly invest in Indian markets. This opens up a huge opportunity for foreign nationals to directly participate in the Indian stock markets via the QFI route. The rules and regulations have been deliberately kept very simple and seamless. Foreigners can put their money into secondary market shares, IPOs, FPOs, OFS as also in mutual funds within the overall limits laid down by SEBI and RBI from time to time. QFIs can buy up to 5% of the paid-up capital of a company, with an overall limit capped at 10% in a company. Most importantly, these investment limits are over and above that for FIIs and NRIs, which have already been in existence.
QFI will be distinct from FII and non-resident Indians (NRI) and such QFI can be a foreign individual investor in Germany or any other country, who can buy into stocks of any listed company in India. All a QFI needs is to complete a few basic requirements like the Know Your Customer (KYC) norms.
Few things that QFIs have to keep in mind while investing in India
- QFIs can transact only on delivery-based transactions and each transaction shall be cleared & settled on a gross basis. They are barred from intraday transactions and they cannot issue any participatory notes or ODIs.
- Any purchase of shares from the Caution List requires prior approval of the depositories viz. NSDL or CDSL.
- QFI can be a person who resides in a country that is a member of Financial Action Task Force (FATF) or a member of a group which is a member of FATF or is resident in a country that is a signatory to IOSCO’s or a signatory of a bilateral MOU with SEBI.
- Some of the prominent countries whose citizens are allowed to invest are: Australia, USA, Canada, France, Germany, UK, Japan, Russia, Qatar, UAE, Kuwait, and Saudi Arabia, besides many more.
Getting your documentation in place is the key for QFIs
- A QFI has to comply with KYC (Know your customer) norms and has to apply for a Permanent Account Number in India.
- The document required are: Copy of passport of the Individual, Registration certificate for Non-Individual, Copy of PAN Card (Permanent Account Number, which is essentially a tax registration number and Bank statement
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How can QFIs make payments and how can they repatriate their funds
- A QFI shall open a single non-interest bearing Rupee Account with an AD Category- I bank in India, for routing the receipt and payment for transactions relating to purchase and sale of eligible securities. These will be subject to the conditions as may be prescribed by RBI from time to time.
- The sale proceeds from equity shares shall be repatriated to the designated bank account of the QFI within five working days. However, the sale proceeds of the existing investment can be also utilized for fresh purchases of equity shares under this scheme during this 5-day period.
- A dividend on equity shares held by QFIs can either be directly remitted to the designated overseas bank accounts of the QFIs or credited to the single rupee pool bank account. In case dividend payments are credited to the single rupee pool bank account they shall be remitted to the designated overseas bank accounts of the QFIs within five working days. Within these five working days, such dividend payments can be also utilized for fresh purchases of equity shares by the QFI.
- QFIs can remit foreign inward remittance through normal banking channel in any permitted currency (freely convertible).
The case for QFI to invest in India
There are some compelling reasons for the QFIs to consider investing in India:
- India is a prominent emerging market with GDP growth in excess of 7.5% and it is growing faster than China.
- Secondly, India is a great consumer market and that provides an opportunity for QFIs to participate in the big India consumer story.
- The on-boarding process for QFIs as well as the investment norms for QFIs is quite simple and user-friendly with minimal regulation and bureaucracy involved.
- Indian debt paper offers much higher rates of return compared to other emerging markets and generally holds returns due to a stable currency.