The Central Government on Monday announced that it was making a move to allow foreign investors, other than foreign institutional investors (FIIs) to invest up to $10 billion in domestic mutual funds.

This class of investors, called qualified foreign investors (QFIs) but not FIIs, will be able to invest money in domestic mutual funds through unit confirmation receipts (DPs) or through the depository participant route, Joint Secretary (Capital Markets) in the Finance Ministry Thomas Mathew said.

QFIs could be individuals and bodies, including pension funds, and cumulatively they could invest up to $10 billion (about Rs.45,000 crore). At present, only FIIs, sub-accounts registered with market regulator Securities and Exchange Board of India and NRIs are allowed to invest in mutual fund schemes in the country.

To begin with, $10 billion was the total ceiling on QFI investment in India but it was subject to review depending on the response, he said. “SEBI will be the regulator for all investments for both routes. It will issue necessary notification and framework by August 1,'' he added.

KYC norms

Only know-your-customer (KYC) compliant retail foreign investors would be allowed to invest and the depository participants (DPs) would ensure proper KYC of QFIs according to the norms prescribed by SEBI, he said. Besides, mutual funds would undertake KYC of QFIs. He further said one QFI could open one account in one of the qualified DPs and only QFIs from jurisdictions which were FATF (Financial Action Task Force) compliant would be eligible to invest in the MFs under the scheme. The move follows announcement of Finance Minister Pranab Mukherjee on the issue in the latest budget.

The average assets managed by the MF industry, consisting of 40 players, stood at Rs.7 lakh crore as on March 31, 2011.