Government puts ceiling of $10 bn on QFIs investments

NEW DELHI: The government has put a ceiling of $10 bn on overall investments by qualified foreign investors, which will include individuals and bodies such as pension funds, in domestic mutual funds.

The move comes after the Finance Minister Pranab Mukherjee in his budget speech for 2011-12 had said that the government will liberalise the portfolio investment route and registered mutual funds will be allowed to accept subscriptions from foreign investors.

"This class of investor called Qualified Foreign Investors (QFIs) but not Foreign Institutional Investors (FIIs) can invest money into domestic mutual funds through Unit Confirmation Receipts (UCR) or Depository Participant (DPs) route," said Thomas Mathew, joint secretary (capital markets) in the Finance Ministry. The government may review the ceiling of $10bn depending on the response, added Mathew.

At present only FIIs and sub-accounts registered with the market regulator SEBI and NRIs are allowed to invest in mutual fund schemes in the country. Market regulator, Securities and Exchange Board of India (SEBI) will regulate all investments made by QFIs under both routes and will issue necessary notification and framework by August 1.
"Only KYC (know-your-customer) compliant retail foreign investors would be allowed to invest and the DPs will ensure proper KYC of QFIs as per the norms prescribed by SEBI," said Mathew, adding that mutual funds would also undertake KYC of QFIs.

As per the new guidelines one QFI can open one account in one of the qualified DPs and only QFIs from jurisdictions which are FATF (Financial Action Task Force) compliant would be eligible to invest in the MFs under the scheme. The minimum paid up capital requirement will be Rs 50 crore for DPs looking to open demat accounts of QFIs.

The average assets managed by the Mutual Fund industry, consisting of 40 players, stood at Rs 7,00,538 crore as of March 31, 2011. The government is of view that since it is going to be retail investment, the move will help in moderating volatility in the capital market.

"Adequate marketing will be required to generate interest among retail investors. It will be interesting to see how pension funds will look at this avenue," said an asset manager with a leading Mutual Fund.