Investment Norms eased in India for foreign investors – FIIs

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   Foreign capital has grown in relevance over the years. It has been influenced by strong domestic fundamentals and buoyant yields, reflecting robust corporate sector performance. In order to give a boost to the sagging capital markets, the government has permitted foreign individuals, pension funds and trusts to subscribe to public offers of domestic companies.

   So, qualified foreign investors will be able to invest in initial public offers (IPOs) and follow-on public offers (FPOs). Presently, these investors have direct access to domestic mutual fund schemes.

   Also, at present, foreign institutional investors (FIIs) or foreigners, through sub-accounts with registered FIIs, can invest in the equity markets. Unregistered foreign individuals and institutions invest through participatory notes (PNs). In this arrangement, a large number of qualified foreign investors (QFIs), including a large number of diversified individual foreign nationals who want invest in the domestic equity markets do not have direct access. In the absence of a direct route, many QFIs find it difficult to invest in the domestic equity markets.

   QFIs have been permitted direct access to mutual fund schemes pursuant to the Union Budget 2011-12. As the next logical step, it has now been decided to allow QFIs to invest directly in the equity markets in order to widen the segments of investors here, attract more foreign funds, reduce market volatility and to deepen the capital markets.

   A QFI is an individual, group or association resident in a foreign country that is compliant with the Financial Action Task Force standards. QFIs do not include FIIs or their subaccounts.

   This option will allow investors from over 80 countries to access the domestic equity markets. The QFIs will have a separate ceiling, apart from FIIs and NRIs. A QFI can hold up to five percent of paid-up equity in a company. All QFIs put together cannot hold more than 10 percent in a company. QFIs will first need to open a demat account with any depository participant (DP), as sale and purchase of equity will be allowed only through such an account. One QFI will be permitted to open only one account. They would also need to fulfil the 'know your customer' (KYC) norms. The Income Tax Department will issue a separate form for the permanent account number and KYC for QFIs.

   The move is expected to increase inflows and add more liquidity to the markets. It is expected to encourage long-term investments and reduce dependence on FII money. It will provide another window for foreign investors to invest in India. Also, companies will be able to increase the investor base and raise resources from a wider investor base. This will lead to greater momentum in the capital markets.

 

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