SEBI Allows QFIs To Invest Up To $13 Bn In Mutual Funds

SEBI has allowed qualified foreign investors (QFIs) to buy up to $10 Bn in domestic equity schemes and an additional $3 bn in debt funds that invest in corporate bonds of infrastructure companies.

However, SEBI notified that fund houses can accept subscriptions from QFIs only up to $8 bn in equities and $2.5 bn in debt schemes. The rest ($2 bn in equity and $0.5 bn in debt) would be auctioned by SEBI through bidding.

The decision is expected to increase money flows into the Indian equity market. The decision comes as a follow-up of this year’s budget plan to widen equity market opportunities for foreign investors and to deepen the debt market.

So far only FIIs and overseas Indians wer allowed to buy units of domestic MFs. Foreign retail investors had to rely on emerging markets or country-specific funds to take an exposure to India. According to SEBI, the infrastructure bonds should have a residual maturity of at least five years.

A QFI is a person resident in a country compliant with Financial Action Task Force (FATF) standards and that is a signatory to the International Organisation of Securities Commission's Multilateral Memorandum of Understanding. QFIs should not be resident in India or registered with Sebi as a foreign institutional investor or sub-account. QFIs include retail investors, insurance firms and trust funds.

The QFI limit for debt will be within the overall ceiling of $25 Bn, including FIIs, set by RBI in corporate debt issued by infrastructure firms.

SEBI also stated that QFIs could buy units of equity or debt schemes in the primary market but cannot trade in the secondary market. QFIs can hold units in a demat account through a depository participant or via unit confirmation receipts that will require domestic MFs to open foreign currency accounts.

As per AMFI data, there are 42 mutual fund companies with assets under management of Rs.728,187 Cr as on July 2011, with equity funds comprising 23%.

Reference: SEBI

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