SEBI: Investment by Foreign Investors in Mutual Fund Schemes

In the budget speech of 2011, Hon’ble Finance Minister announced the following:

“Currently, only FIIs and sub-accounts registered with the SEBI and NRIs are allowed to invest in mutual fund schemes. To liberalise the portfolio investment route, it has been decided to permit SEBI registered Mutual Funds to accept subscriptions from foreign investors who meet the KYC requirements for equity schemes. This would enable Indian Mutual Funds to have direct access to foreign investors and widen the class of foreign investors in Indian equity market.”

In order to facilitate the above and in consultation with the Government and RBI, it has been decided that foreign investors (termed as Qualified Foreign Investors/ QFIs) who meet KYC requirement may invest in equity and debt schemes of Mutual Funds (MF) through the following two routes:

• Direct route - Holding MF units in demat account through a SEBI registered depository participant (DP).
• Indirect route- Holding MF units via Unit Confirmation Receipt (UCR).

The investment through the above mentioned routes shall be subject to the following conditions :

• Qualified Foreign Investor (QFI) shall mean a person resident in a country that is compliant with Financial Action Task Force (FATF) standards and that is a signatory to International Organization of Securities Commission's (IOSCO’s) Multilateral Memorandum of Understanding,
• Provided that such person is not resident in India
• Provided further that such person is not registered with SEBI as Foreign Institutional Investor or Sub-account.

In addition to the above, the aggregate investments by QFIs under both the routes for debt schemes which invest in infrastructure (“Infrastructure” as defined under the extant ECB guidelines issued by RBI) debt of minimum residual maturity of 5 years, shall be subject to a total overall ceiling of US $3 billion within the existing ceiling of USD 25 billion for FII investment in corporate bonds issued by infrastructure companies.

MF can accept subscriptions from QFIs till such time the investments by QFIs under both the routes reaches US $ 8 billion in equity schemes and US$ 2.5 billion in debt schemes and the remaining limit of US $ 2 billion in equity schemes and US$ 0.5 billion in debt schemes shall be auctioned by SEBI through bidding process.

CIR/IMD/DF/14/2011