SEBI expands definition of qualified foreign investor

The Securities and Exchange Board of India (SEBI) has expanded the definition of the term qualified foreign investors (QFI) to include residents of foreign countries that are member of the Financial Action Task Force (FATF) or members of a group affiliated to the FATF, or a signatory to International Organisation of Securities Commissions' (IOSCO) MoU or a signatory of a bilateral MoU with SEBI.

The decision has been taken in consultation with the Government of India and Reserve Bank of India, SEBI said in a release.

QFIs are allowed to invest in schemes of Indian mutual funds and Indian equity shares subject to terms and conditions mentioned therein. Subsequently, vide SEBI circular dated 7 June 2012, the QFI framework has been revised.

SEBI said a resident in a country that is a member of the FATF or a member of a group, which is a member of FATF and resident in a country that is a signatory to IOSCO's MOU or a signatory of a bilateral MoU with SEBI will be considered as a qualified foreign investor, provided that the person is not resident in a country listed in the public statements issued by FATF from time to time on anti-money laundering and combating financing of terrorism as also jurisdictions that have not made sufficient progress in addressing these deficiencies or have not committed to an action plan developed with the FATF to address the deficiencies.

Persons not registered with SEBI as foreign institutional investor or sub-account or foreign venture capital investor may not qualify as a QFI.

QFIs have been allowed to invest in mutual fund debt schemes, which invest in infrastructure debt up to a total ceiling of $3 billion out of the total long term corporate infrastructure limits of $25 billion.

RBI has relaxed investment restriction for QFI investment in debt mutual fund schemes which invest in infrastructure.

Accordingly, QFIs can now invest in those debt mutual fund schemes that hold at least 25 per cent of their assets (either in debt or equity or both) in the infrastructure sector under the $3 billion investment limit of debt mutual fund schemes, which invest in infrastructure.

Monitoring and allocation of $3 billion limit of QFI investment in debt mutual fund schemes which invest in infrastructure will be in the following manner:

• QFI can invest without obtaining approval until the overall QFI
  investments reaches 90 per cent of $3 billion (i.e. $2.7 billion).
  
• Terms and conditions related to monitoring, allocation, requirement of obtaining prior approval (after reaching 90 per cent of investment limit) and reporting are as prescribed in circular dated 18 July 2012.
  
• QFIs should comply with provisions of the Foreign Exchange Management Act, 1999 (FEMA).