New Delhi: In an attempt towards the stock market reforms, qualified foreign investors (QFIs) have been allowed by the government to directly invest in equities. The decision will help reduce volatility in markets and attract more foreign funds.
The move comes against the backdrop of significant foreign capital outflows from the domestic equity market in recent times, which has resulted in rupee volatility.
The QFIs shall include individuals, groups or associations, resident in a foreign country which is compliant with Financial Action Task Force (FATF) and that is a signatory to IOSCO’s multilateral MoU.
The individual and aggregate investment limit for QFIs will be 5% and 10%, respectively, of the paid up capital of company, ministry of finance said in a press release on Sunday.
In August last year, the government allowed foreign investors to directly invest upto $13 billion in equity and debt schemes of mutual funds.
Till now only foreign institutional investors (FIIs) and non-resident Indians (NRIs) are allowed to directly invest in stocks.
According to the scheme, the QFIs will be allowed to invest through Sebi (Securities and Exchange Board of India) registered qualified depository participant (DP), and can open only one demat account and a trading account with any of the qualified DP. They will be able to make transaction through that DP only. And the DP will have to ensure that QFI meet all regulatory norms.
Amid severe volatility in the capital market last year, FIIs outflows amounted to more than Rs2,700 crore. The situation had an impact on the rupee, which fell to an all-time low of 54.30 against dollar on 15 December and fluctuation in the domestic currency has put pressure on policymakers.
QFIs will be able to remit money through normal banking channel in any permitted currency (freely convertible) directly to the single rupee pool bank account of the DP maintained with a designated AD category - I bank, the ministry said.
The Sebi and the RBI are expected to issue relevant guidelines to operationalize the scheme by 15 January.
PTI contributed to this story.