In a further liberalisation of the portfolio investment route incorporating the industry's suggestions for a more vibrant debt market for the infrastructure sector, the Centre on Tuesday permitted a new category of qualified foreign investors (QFIs) to invest up to $13 billion in equity and debt schemes of mutual funds (MFs).

Announcing this, for which the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI) issued separate notifications to set the investment norms as market regulators, a Finance Ministry statement said: “It has been decided that the aggregate investments by qualified foreign investors (QFIs) in equity schemes of the mutual funds under direct and indirect routes shall be subject to a ceiling of $10 billion.''

Residual maturity

Similarly, QFIs can invest up to an additional amount of $3 billion in the units of the mutual fund scheme, which invest in infrastructure debt of minimal residual maturity of five years in corporate bonds issued by infrastructure companies, it said.

For the purpose, a QFI has been categorised as an individual, group or association, resident in a foreign country and is compliant with the Financial Action Task Force (FATF) standard and a signatory to the International Organisation of Securities Commission's multilateral memorandum of understanding.

The Ministry made it clear that QFIs “do not include foreign institutional investors or sub-accounts as these are already permitted to invest in equity and debt markets in India as per the extant guidelines of SEBI and the RBI.''

The move follows the announcement of Mr. Mukherjee on the issue in the last Budget

Significantly, the opening up of the investment window has come about at a time when concerns are being voiced over the flight of foreign capital and just over a week of Finance Minister Pranab Mukherjee's meeting with India Inc., wherein industry captains sought a green signal for QFI investment of up to $ 3 billion in infrastructure debt schemes.

Direct access

According to the Ministry statement, while the policy announcement would enable QFIs to have direct access to Indian mutual funds, it would also widen the class of investors participating in the country's capital market, help increase depth and reduce market volatility.

Setting the guidelines, the RBI said in its notification that dividend payments on units held by QFIs would have to be directly remitted to the overseas accounts of QFIs by the domestic mutual funds and dividend payments to QFIs would not be allowed as an eligible credit to the single rupee pool bank account.

Alongside, in a separate notification, SEBI said that while QFIs can buy units of equity or debt funds in the primary market, they cannot trade in the secondary market.

Besides, it noted that when the cumulative QFI investments reach $8 billion in equity schemes, SEBI would auction the remaining limit to foreign investors who could then buy the units from funds of their choice. A similar process would be followed when the investment in debt touch $ 2.5 billion.

The QFI limit for debt would be within the overall ceiling of $25 billion, including FIIs, set by the RBI in corporate debt issued by infrastructure companies.

The QFI scheme, the Ministry statement said, would make it easier for overseas investors to participate in the infrastructure sector projects in India and thereby provide an additional source of overseas long-term debt funding.

PTI reports:

The average assets managed by the mutual fund industry, consisting of 40 players, stood at Rs. 7.28 lakh crore as on July, 2011.