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I must firstly thank Quantum for all the useful knowledge you give out for new IFAs like me, It is very helpful. I used to work in Information Technology but was always inclined towards financial markets. I entered into this profession about a year ago, the journey has been wonderful. My question is about Individual Foreign Nationals (Not NRI, Pure Foreign citizens) . I want to know if it is possible for them to invest in Indian Mutual Funds, If yes what is the process? I was able to find information about a

To answer your first query - I want to know if it is possible for them - Individual Foreign Nationals (Not NRI, Pure Foreign citizens) to invest in Indian mutual funds. If yes, what is the process?

Individual Foreign Nationals can invest in Indian Mutual Funds but they cannot avail of SIPs or STPs/SWPs (As per Point 13.2.11 of Master Circular SEBI) and their Investment will be non-transferable and non-tradable i.e. it can only be redeemed. (Point 13.2.8)

To invest in Mutual Funds in India, an individual must be a PAN holder and complete KYC requirements of the fund house. Foreign nations can apply for PAN via Form 49 AA. As per Circular No – CIR / IMD / FII&C / 13/ 2012 QFI’s cannot be registered with SEBI as a Foreign Institutional Investor or sub-account or Foreign Venture Capital Investor.

As per FAQ’s of SEBI on FPI, The existing Qualified Foreign Investors (QFIs), which are in the nature of corporate bodies/individuals, will fall under the Category III of the FPI regime.

 

FOREIGN CITIZENS

 

THROUGH QFI ROUTE THROUGH BOTH QFI AND FDI ROUTE

SR.NO.

PARTICULARS

 

SEBI CIRCULAR REFERENCE

DESCRIPTION

LIMITS

1

Investment In Mutual Funds

Master Circular Point 13.2.6

Collective QIF Limits

MF can accept subscriptions from QFIs till such time the investments by QFIs under both the routes reaches US $8 billion 180 Master Circular for Mutual Funds in equity schemes and US $2.5 billion in debt schemes and the remaining limit of US $2 billion in equity schemes and US $0.5 billion in debt schemes shall be auctioned by SEBI through bidding process.

1

Investment in Equity Shares and Mutual fund Units

CIR/ IMD/ FII&C/ 13/ 2012

A QFI shall open a single non-interest bearing Rupee Account with an AD Category- I

bank in India, for routing the receipt and payment for transactions relating to purchase

and sale of eligible securities

the aggregate holding of the person in such company shall not exceed

Five percent of paid up equity capital of the company at any point of time.

2

Investment in Debt Mutual funds

CIR/ IMD/ FII&C/ 18/ 2012

 

QFIs can now invest in those debt mutual fund schemes that hold

at least 25 percent of their assets (either in debt or equity or both) in the

infrastructure sector under the USD 3 billion investment limit of debt mutual fund

Schemes which invest in infrastructure.

3

Investment in Commercial Papers

CIR/IMD/FIIC/4/2014

 

Eligible investors may invest in

Commercial Papers only up to US$ 2

billion and up to US$5 billion in Credit

Enhanced Bonds within the limit of US$

51 billion

 

4

Investment in T Bill

CIR/IMD/FIIC/8/2014

 

SEBI circular Ref. No. dated April 07, 2014,

FPIs have been prohibited from purchasing T-Bills.

5

Investment in Government Securities

FAQ’s

 

Permitted to invest only in G-Secs having a minimum residual

Maturity of one year.

 

* Foreign investors can buy Mutual Fund schemes via the Direct or Indirect route:-

1. Direct Route

Purchase - QFI makes purchase payment request specifying the scheme name and transfer’s the funds to DP.

DP forwards the purchase request, transfers funds on same day, to happen next day if request comes after business hours.

AMC Processes the purchase request. Credits the units into Demat a/c of a QFI.

Redemption - On receipt of instruction from QFIs, DP shall process the same and forward the redemption instructions to the MF. Upon receipt of instruction from DP, MF shall process the same and shall credit the single rupee pool bank account of the DP with the redemption proceeds.

2. Indirect Route - Holding MF units via Unit Confirmation Receipt (UCR).

There shall be four parties involved -


  1. I. QFIs,
  2. II. UCR issuer (based overseas),
  3. III. SEBI registered Custodian (based in India) and,
  4. IV. MF

QFIs can subscribe / redeem only through the UCR Issuer.

MF shall appoint one or more UCR issuing agent overseas and one SEBI registered custodian in India.

UCR issuer appointed by MF shall act as agent of the MF. MF can appoint entities fulfilling the following conditions as UCR issuer:

In case of MF opening bank account overseas (in accordance with the relevant extant FEMA regulations)

UCR issuer shall forward the order of QFIs to the MF/Custodian. Upon receipt and transfer of funds to India; the MF shall issue units to the custodian and custodian in turn confirm to the UCR Issuer to issue UCR to the QFIs.

In case of redemption, UCR issuer shall confirm receipt of redemption request to the MF and Custodian. Upon receipt of instruction, MF shall process the same and shall transfer the redemption proceeds to the MF overseas bank account for making payment to the designated overseas bank account of the QFIs.

In case MF receives money in India from UCR issuer.

UCR issuer shall forward the purchase order to MF and Custodian, and remit the funds into MF scheme account (in rupee terms). Upon receipt of funds; the MF shall issue units to the custodian and custodian shall in turn confirm to the UCR Issuer to issue UCR to the QFIs.

In case of redemption, UCR issuer shall confirm receipt of redemption request to the MF & Custodian. Upon receipt of instruction, MF shall process and remit redemption proceeds to the UCR issuer which in turn shall remit redemption proceeds to the designated bank account of the QFIs.

As per an RBI report -

Individual foreign nationals can invest in Indian Mutual Funds by registering as FPI Category III (they can seek registration by making an application to the Designated Depository Participants (DDPs) who have been approved by the SEBI to grant FPI registration). Please note that FPIs are not permitted to invest in Liquid and Money market mutual funds. Investments in debt mutual funds will be reckoned under the corporate bond limits. Individual foreign nationals are also not permitted to invest in Gold or commodity linked ETFs.
FPIs are permitted to invest in corporate bonds with minimum residual maturity of above 1 year, subject to condition that short term investments in corporate bonds by an FPI shall not exceed 20% of the total investment by FPI in corporate bonds (SEBI circular attached)

  • (1) A person resident outside India (other than a citizen of Bangladesh or Pakistan or Sri Lanka) or an entity outside India, whether incorporated or not, (other than an entity in Bangladesh or Pakistan), may purchase shares or convertible debentures of an Indian company under Foreign Direct Investment Scheme, subject to the terms and conditions.
  • (2) A registered Foreign Institutional Investor (FII) may purchase shares or convertible debentures of an Indian company under the Portfolio Investment Scheme, subject to the terms and conditions.

Link to report - https://www.rbi.org.in/Scripts/BS_FemaNotifications.aspx?Id=174#sch1

 

To answer your second query - I was able to find information about a "QFI" way of investment, but am not sure how it works.

Please refer to the attached document on QFI for more details.

We have attached appropriate SEBI circulars along with this mail for your reference. (ANNEXURE)

Hope to have answered your queries to utmost satisfaction.

Disclaimer:

Risk Factors: Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

Please visit - www.QuantumMF.com to read Scheme Specific Risk Factors. Investors in the Scheme(s) are not being offered a guaranteed or assured rate of return and there can be no assurance that the scheme's objective will be achieved and the NAV of the scheme(s) may go up or down depending upon the factors and forces affecting securities markets. Investment in mutual fund units involves investment risks such as trading volumes, settlement risk, liquidity risk, default risk including possible loss of capital. Past performance of the Sponsor / AMC/ Mutual Fund does not indicate the future performance of the Scheme(s). Statutory Details: Quantum Mutual Fund (the Fund) has been constituted as a Trust under the Indian Trusts Act, 1882. Sponsor: Quantum Advisors Private Limited. (liability of Sponsor limited to Rs. 1,00,000/-) Trustee: Quantum Trustee Company Private Limited. Investment Manager: Quantum Asset Management Company Private Limited (AMC). The Sponsor, Trustee and Investment Manager are incorporated under the Companies Act, 1956.