Even foreign nationals would now be able to invest in equity schemes of Indian mutual funds (MFs) and those debt schemes that provide loans to the infrastructure companies and have a tenor of at least five years. They can invest up to $10 billion (Rs 45,205 crore) in equity schemes and up to $3 billion in debt funds.
The Securities and Exchange board of India (Sebi) has allowed residents and organisations of 33 jurisdictions (countries), which are compliant with the Financial Action Task Force (FATF) standards and are a signatory to International Organization of Securities Commission’s (ISOCO) multilateral memorandum of understanding (MMoU), to invest in equity schemes of Indian mutual funds (MFs). The guidelines have been issued in consultation with the Reserve Bank of India.
FATF is an inter-governmental body, which helps formulate and promote policies to combat money laundering and terrorist financing. ISOCO’s MMoU sets an international benchmark for cross-border cooperation for combating violation of securities and derivatives laws.
Qualified foreign investors (QFIs) would be able to buy MFs in demat form through authorised depository participants (DPs). The appointment process of DPs is yet to begin. DPs would create a single account for all foreign investors. After the purchase order for a scheme is placed, the investment amount would have to be transferred to this pool account. The DP would then forward the request to the fund house concerned and buy the scheme on behalf of the QFI. The units will be directly credited to the demat account of the investor.
QFIs would need to obtain a permanent account number (PAN) from the Indian income-tax department, besides fulfilling know-your-client (KYC) norms. The Central Board of Direct Taxes (CBDT) would soon notify a common PAN-cum-KYC form to ease the process. The details of the process are yet to be finalized.
Redemption: This, too, will happen through DPs. The DP would forward redemption instructions to the MF, which in turn would process the same and credit the proceeds in the DP’s pool account. It would take at least two working days for the DP to transfer the same to the investor’s account.
Impact on Indian MFs
The Indian capital market movement depends a lot on foreign institutional investors (FIIs). Investment from QFIs may work as a cushion to volatile FII investment. Says Sundeep Sikka, CEO, Reliance Mutual Fund, “The move to allow foreign individual investors to invest in MFs would augur well not only for the MF industry, but for the country as well. Besides, working as a cushion to FII investment, higher capital flows would also assist in higher economic performance as companies would be able to raise funds easily.”
But these investments would take time to fructify. “MFs would have to check regulations that different countries have and place some infrastructure which would enable foreign individuals to invest. It would take three-six months for the same,” says Rajan Krishnan, CEO, Baroda Pioneer AMC.
Mint spoke to some other fund houses, which suggested a similar timeline for investments by QFIs in Indian MFs to become a reality.