RBI/2011-12/148
A.P. (DIR Series) Circular No. 08
August 9, 2011
To,
All Category – I Authorized Dealer banks
Madam / Sir,
Investment in the units of Domestic Mutual funds
Attention of Authorized Dealers Category – I (AD Category - I) banks is
invited to Schedule 5 to the Foreign Exchange Management (Transfer or Issue of
Security by a Person Resident outside India) Regulations, 2000 notified vide
Notification No. FEMA 20 / 2000 -RB dated May 3, 2000 as amended from time to
time, in terms of which, a SEBI registered Foreign Institutional Investor (FII)
and Non Resident Indian (NRI) may purchase, on repatriation basis, units of
domestic Mutual Funds (MFs), subject to such terms and conditions mentioned
therein and limits as prescribed for the same by the Reserve Bank and the
Securities and Exchange Board of India (SEBI), from time to time.
2. It has now been decided, in consultation with the Government and the SEBI,
to allow non- resident investors (other than SEBI registered FIIs and SEBI
registered FVCIs) who meet the KYC requirements of SEBI, hereinafter called
‘Qualified Foreign Investors’ (QFIs), to purchase on repatriation basis rupee
denominated units of equity schemes of domestic MFs issued by SEBI registered
domestic MFs in accordance with the terms and conditions as stipulated by the
SEBI and the RBI from time to time in this regard.
The QFIs may invest in rupee denominated units of equity schemes of domestic
MFs issued by the SEBI registered domestic MFs under the two routes, namely:
- Direct Route – SEBI registered Depository Participant (DP) route
- Indirect Route - Unit Confirmation Receipt (UCR) route
3. These investments would be subject to the following terms and conditions:
General conditions
- Investments by the QFIs would be subject to a ceiling of USD 10 billion
under both the routes. For the purpose of this ceiling of USD 10 billion, total
amount invested for the purchase of domestic MFs units by all QFIs and the money
lying in the single rupee pool bank accounts of DPs would be added. SEBI will
monitor the ceiling of USD 10 billion on daily basis through the concerned
domestic MFs and DPs.
- The investment under both the routes by the QFIs will be in the units which
are directly issued by the domestic MFs and no secondary market purchases would
be allowed.
- Only QFIs from jurisdictions which are compliant with the FATF standards
and are signatories to the IOSCO’s Multilateral Memorandum of Understanding will
be eligible to invest in domestic MFs under this Scheme.
- DPs will ensure KYC of the QFIs as per the norms prescribed by SEBI.
- Domestic MFs would also undertake KYC of the QFIs.
- Units and UCRs issued under this scheme to QFIs, would be non-tradable and
non-transferable.
Direct Route
- The DP route will be operated through separate single rupee pool bank
account to be maintained by the DP with a AD Category I Bank in India. The funds
received from the QFIs into this account shall be remitted to the domestic MF
either on the same day of the receipt of the funds from QFIs or by next business
day in case money is received after business hours, failing which the funds
would be immediately repatriated back to the QFI’s overseas bank account. The
redemption proceeds of the units will also be received from the domestic MF into
this account and shall be repatriated to the overseas bank account of the QFI
within two working days of the same having being received in the rupee pool
account of the DP. Within these two working days the redemption proceeds can
also be utilized for further investment by the QFI under this scheme. The
foreign inward remittances in to the single rupee pool bank account of DPs shall
be received only in permissible currency (i.e. freely convertible currency).
Dividend payments on units held by QFIs would have to be directly remitted to
the overseas accounts of the QFIs by the domestic MFs and dividend payments to
QFIs would not be allowed as an eligible credit to the single rupee pool bank
account.
- QFIs would be allowed to open a single demat account with a DP in India
for investment in rupee denominated units of different domestic MFs equity
schemes. However, the QFIs would not be allowed to open a bank account in India.
Indirect Route
- Domestic MFs would be allowed to open foreign currency accounts outside
India for the limited purpose of receiving subscriptions from the QFIs as well
as for redeeming the UCRs.
- The UCR will be issued against units of domestic MF equity schemes.
4. It has also been decided to allow QFIs to invest (under both the routes –
Direct and Indirect, subject to the terms and conditions mentioned in para 3
above) up to an additional amount of USD 3 billion in units of domestic MF debt
schemes which invest in infrastructure (“Infrastructure” as defined under the
extant ECB guidelines) debt of minimum residual maturity of 5 years, within the
existing ceiling of USD 25 billion for FII investment in corporate bonds issued
by infrastructure companies.
5. Investments by QFIs in units of domestic MFs, as above, shall also comply
with the provisions of FEMA Notification 1 dated May 3, 2000, as amended from
time to time.
6. AD Category - I banks may bring the contents of the circular to the notice
of their customers/constituents concerned.
7. Necessary amendments to Foreign Exchange Management (Transfer or Issue of
Security by a Person Resident outside India) Regulations, 2000 (Notification No.
FEMA 20/2000-RB dated May 3, 2000) and Foreign Exchange Management (Deposit)
Regulations, 2000 (Notification No. FEMA 5/2000-RB dated May 3, 2000)
are being
notified separately.
8. The directions contained in this circular have been issued under Sections
10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and
are without prejudice to permissions / approvals, if any, required under any
other law.
Yours faithfully,
(Meena Hemchandra)
Chief General Manager-in-Charge