Qualified foreign Investors get direct entry

Who are qualified foreign investors?

Qualified foreign investors, or QFIs, can be individuals, groups or associations based abroad who are allowed by the government to invest directly in mutual funds and stocks of Indian companies.

Last year, the government opened a new window for this class of investors to buy into Indian mutual funds directly. It has now gone one step further and allowed them to buy into stocks, too, just like registered foreign institutional investors or nonresident Indians, or NRIs.

Are QFIS a separate class of foreign investors compared to FIIs?

Qualified Foreign Investors will be distinct from foreign portfolio investors and non-resident Indians. A QFI can, for instance, be a foreign individual investor in Singapore or Russia, who can buy into stocks of a Tata groupcompany or Coal India or any other listed stock after fulfilling the Know Your Customer norms through an Indian depository participant and obtaining the approval of the RBI.

QFIs can buy up to 5% of the paid-up capital of a company, with the overall limit capped at 10% in a company. And these investment limits are separate or over and above that for FIIs and NRIs.

How does it help by opening up the markets to one more category of investors?

Indian policy makers reckon that a diverse set of investors in the local markets will help ensure more capital inflows, reduce market volatility and deepen the markets. It would also mean facilitating the entry of a set of relatively wealthy investors who could not access the Indian markets as there were regulatory restrictions on their entry.

For a long time, the government and regulators kept foreign individual investors at bay owing to concerns relating to money laundering and due diligence. With restrictions in place, foreign individual investors had to either buy into Indian stocks through Participatory Notes, or PNs, or invest in India-focused offshore funds.

By allowing a new set of investors, the government and regulators are hoping that it will lead to more inflows at a time when capital inflows have virtually dried up