Qualified Foreign Investors (QFI) and their Investment Norms
In this article, we will discuss who the Qualified Foreign Investors are and what are the permissible transactions they can invest in?
What is Qualified Foreign Investors (QFI)?
The Qualified Foreign Investor (QFI) is nothing but a sub-category of Foreign Portfolio Investor (FPI) and it denotes to any foreign individuals, groups or associations, or resident, however, limited to
- i) those from a country that is a member of Financial Action Task Force (FATF)
- ii) Or a country/nation that is a member of a group which further is a member of FATF and a country/nation that is a signatory to International Organization of Securities Commission’s (IOSCO) Multilateral Memorandum of Understanding (MOU)
iii) or a signatory of a bilateral MOU with SEBI.
Union Budget has announced such a QFI scheme and Government of India introduced this in consultation with RBI and SEBI in the year 2011.
The main purpose of enabling QFIs is to deepen and infuse more foreign funds in the Indian capital market and to reduce market volatility as individuals are generally assumed to be long-term investors, as compared to institutional investors in the market. Thus to open the way for foreign funds in Indian markets and further invest them to earn the profit from such investments.
QFIs are permitted to make investments in specified/selected instruments by opening a demat account in any one of the SEBI approved Qualified Depository Participant (QDP).
What are the Permissible Investment Activities for QFIs?
- Purchase of equity shares in public issues, to be listed on a recognised stock exchange(s) of India.
- Purchase and sale of listed equity shares on recognized stock exchanges in India.
- Redemption of mutual fund units purchased/subscribed through the direct and indirect way
- Subscribing to the equity shares against rights issues.
- Receiving bonus shares or receipt of shares on stock split/ consolidation in the market.
- Receiving equity shares offered due to amalgamation, demerger or such other corporate actions, subject to the investment limits.
- Receiving dividends and interest payments on its investments.
- Submit its equity shares in an open offer as per provisions of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.
- Submit its equity shares in an open offer as per the provisions of SEBI (Delisting of Equity Shares) Regulations, 2009.
- Offer its equity shares in case of buy-back by listed companies as per the provisions of SEBI (Buyback of Securities) Regulations, 1998
- Purchase and sale of corporate debt securities as listed on a recognized stock exchange(s) of India;
- Purchase of corporate debt securities through public issues, if a listing on the recognized stock exchange(s) is committed to being done as per the extant provisions of the Companies Act, 1956;
- Sale of corporate debt securities by way of buyback or redemption by the issuer held by it.
- Purchase and sale of units of debt schemes of Indian mutual funds as held by it.
However, there are certain key Investment Restrictions and further limits in the case of investments made by QFIs.
Restrictions on Investments:
- QFIs can transact in Indian equity shares only on delivery basis.
- QFIs are not allowed to issue offshore derivative instruments/ participatory notes against shares in India
- QFIs are permitted to open a single non-interest bearing bank account with an Authorised Dealer (AD) Category – 1 bank & only one demat account with any one of the QDPs. It shall make purchase and sale of equity shares through this QDP only.
Limits on Investments:
- The total shareholding by an individual QFI shall not be more than five percent of a company’s paid-up equity share capital at any time, in respect of each class of equity shares of the company.
- The aggregate shareholding of all QFIs shall not be more than ten percent of a company’s paid-up equity share capital at any time, in respect of each class of equity shares of the company.
QFIs precludes FIIs/Sub-accounts/ Foreign Venture Capital Investor (FVCI).
Thus, QFIs play a very vital role in the investment sector of the Indian market.