Qualified Foreign Investors (QFIs)
The Qualified Foreign Investor (QFI) is sub-category of Foreign Portfolio Investor and refers to any foreign individuals, groups or associations, or resident, however, restricted to those from a country that is a member of Financial Action Task Force (FATF) or a country that is a member of a group which is a member of FATF and a country that is a signatory to International Organization of Securities Commission’s (IOSCO) Multilateral Memorandum of Understanding (MMOU).
QFI scheme was introduced by Government of India in consultation with RBI and SEBI in the year 2011, through a Union Budget announcement.
The objective of enabling QFIs is to deepen and infuse more foreign funds in the Indian capital market and to reduce market volatility as individuals are considered to be long term investors, as compared to institutional investors.
QFIs are allowed to make investments in the following instruments by opening a demat account in any of the SEBI approved Qualified Depository Participant (QDP):
- Equity and Debt schemes of Indian mutual funds,
- Equity shares listed on recognized stock exchanges,
- Equity shares offered through public offers
- Corporate bonds listed/to be listed on recognized stock exchanges
- G-Securities, T-Bills and Commercial Papers
QFIs do not include FIIs/Sub-accounts/ Foreign Venture Capital Investor (FVCI).
Need and context for allowing QFIs
Uptill 2011, foreign investors, including foreign nationals, institutions, funds and other entities, invested into India:
- Either as FII/ sub-account of an FII
- Or, by buying into an offshore exchange listed fund (ETF)-which has a back to back cover into an FII /sub-account
- Or, through instruments such as Participatory Notes issued by FII against an Indian security-stock or Index.
- Or by investing in Depository receipts issued by Indian companies such as ADR /GDR
Since the direct investment route was not available for individuals or anybody other than an FII, many foreign retail investors including High Networth Individuals (HNIs), foreign endowment funds, pension funds etc. who were desirous of investing in India used to find it difficult and therefore get discouraged to invest in India.
In the wake of low global interest rates and weak economic recovery in the western economies in the post-financial crisis period beginning 2008-09, emerging market economies like India were poised to receive more foreign capital flows. Considering this opportune time, QFI scheme was designed so as to attract a large set of diversified individual investors from low risk regimes, in the form of Qualified Foreign Investors (QFIs), by allowing them to have direct access to Indian equity market.
Benefits of QFI Scheme
QFIs access to equity market is expected to broad base the market while enhancing the capital flows into India. More importantly, since QFIs are the diversified set of heterogeneous investors, QFIs participation is expected to help dampen the volatility in Indian equity market that arises due to sudden inflows or off-loading done by FIIs. The direct participation route offered through the QFI scheme was expected to reduce the transaction cost and complexity hitherto persisting due to large number of intermediaries. It would also bring in better transparency while reducing the need for using participatory notes route. QFIs access to Equity market is also expected to help harnessing the investment potential remaining untapped in various sectors.
Present Status of QFIs
QFIs, have now been merged in to Foreign Portfolio Investors (FPI), when the FPI regulations were introduced in 2014.
The existing QFIs may continue to buy, sell or deal in securities for a period of one year from the date of commencement of FPI Regulations i.e. till January 06, 2015 or until it obtains a certificate of registration as FPI, whichever is earlier.
