The Government may soon allow a foreign individual, foreign pension fund or a foreign trust to invest directly into Indian equity market. These investors are called Qualified Foreign Investors (QFIs).
This move is likely to boost market sentiment. At present foreign institutional investors (FII) or foreigner through sub account with registered FII can invest into equity market. Currently, unregistered foreign individuals and institutions invest through participatory notes (PN).
A senior Finance Ministry told
A final decision will be taken after the response from the banking regulator is received.
The guidelines related with foreign exchange will be issued by the RBI while the market regulator SEBI will issue guideline related with investment in the equities.
Individuals and organisations from 80 countries will be eligible to invest as QFIs. These countries are compliant with the Financial Action Task Force (FATF) standard and also signatories to the International Organization of Securities Commission (IOSCO).
On August 9, the Government had allowed such QFIs to invest directly into domestic mutual fund schemes. These investors can invest up to$10 billion in equity schemes while for debt mutual fund schemes there will be an addition limit of $3 billion. There will not be any limit for one investor or one scheme.
Any foreign individual wanting to put money into equity, investors will have to fulfil “Know Your Customer (KYC)” norms prescribed the regulators for any other investor. The Central Board of Direct Taxes (CBDT) will issue a separate form for PAN and KYC especially for the QFI. The depository participant can facilitate the QFIs to fulfil all these statutory requirements.
Regarding tax treatment, the official clarified that a separate notification will be required to be issued by the Income Tax treatment. However, it is likely to be same as domestic investor. However, investors coming from a country which has double taxation avoidance agreement (DTAA) with India may get benefit like any other FII.
However, analysts are not very sure that such a move will increase the volume in the market. Mr Jagannadham Thunuguntla, Strategist & Head of Research of SMC Global Securities Ltd, said, “I completely agree with the intent of the regulation but timing is not giving confidence to the foreign individual and institutions to put money here.” Secondly, most of the global research agencies have under-weighed the Indian market. So, foreign individuals and institutions, going by that, would not like to put in money, he added.