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Qualified Foreign Investors
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  Economics of the Year By vijay Jha CONTACT 9417143923   Special CollectionFor2012 Civil Services V  1   J   QFI Qualified Foreign Investors are those institutional investors that have to meet certain qualifications toinvest in securities outside its home country. Such qualifications are set by the regulator of that foreigncountry.In August, 2011, SEBI permitted QFIs to invest in mutual fund schemes and in January, 2012, QFIs wereallowed to directly invest in Indian equity market. QFIs can now invest through automatic route similarto investment facilities provided to FIIs. SEBI’s parameters for QFIs : SEBI’s parameters for DP to qualify for doing business with QFI:  Benefits to QFIs:   1.   QFI must be a resident of a)   A country compliant with FATF standards to combat moneylaundering & terrorist financing.b)   A country that is signatory to International Organization of  Securities Commission’s Multilateral Memorandum of  Understanding.2.   QFI must meet the KYC requirements.3.   QFI should not be an Indian resident or registered FII.1.   Qualified DPs must have a paid up capital of Rs.50 crore.2.   They must be either a clearing bank or a clearing member of anyclearing corporation.3.   Such DPs are expected to comply with FATF standards forprevention of money laundering.4.   They must get prior approval of SEBI before opening QFI’s account. 1.   QFIs can receive shares arising from amalgamation, demerger, orsuch corporate actions, subject to investment limit.2.   They are eligible for dividends.3.   They are allowed to tender equity shares in open offers, delistingand buybacks.  Economics of the Year By vijay Jha CONTACT 9417143923   Special CollectionFor2012 Civil Services V  2   J   Limitations on QFIs:Difference between QFI & FIIQFI FII Can invest only in primary market. Can invest both in primary & secondary markets.   Are eligible for dividends. Are eligible for dividends.Can invest in equity & debt Mutual Funds Can invest in equity, derivatives & debt MutualFunds Can’t issue Participatory Notes. Can issue Participatory Notes.Can invest only through Depository Participantroute.Can directly invest in Indian securities. Procedure of Investment by QFIs: QFIs can invest through Depository Participant route along with the Unit Confirmation Receipt (UCR),involving custodians.QFIs have two options:i.   In the first option, QFIs can open a Demat Account with a Depository in India and buy units.ii.   In the second option, QFIs can place an order with an overseas Depository, which will thentransfer it to a custodian bank in India for buying the units.  Note:i.   Finance Ministry has allowed NRIs to invest up to $10 billion in domestic mutual fund. ii.   Currently, apart from the resident Indians, FIIs, sub-accounts registered with SEBI, NRIs &QFIs can invest in domestic mutual funds. iii.   QFIs can be individuals and bodies, including pension funds, etc. iv.   Fund Houses will be responsible for Tax deductions at source. FIIEligibility: SEBI decides FIIs eligibility on the basis of following parameters —  i.   Applicants track record, its professional competence, performance and goodwill.ii.   Applicant must be in existence for at least one year before making application to SEBI.iii.   Applicant must be registered with and regulated by an appropriate Foreign RegulatoryAuthority, similar in capacity to SEBI.   1.   The investment by QFI would be subject to an individual investment limit of 5% of thepaid-up capital of the Indian company and aggregate investment limit of 10%. 2.   QFI can open only one demat account with any one of the DPs and can buy and sellequity shares only through that DP.3.   For joint accounts, every holder shall individually meet the requirements prescribed forQFIs.4.   QFIs investment will be taxed at the same rate as the Indian investors, which meansQualified DP would deduct TDS at the short term rate for these investors at the time of remitting the sales proceeds.  Economics of the Year By vijay Jha CONTACT 9417143923   Special CollectionFor2012 Civil Services V  3   J   Participatory Notes PNs are instruments issued by registered FIIs to overseas investors, who wish to invest in the IndianStock Market without registering themselves with the market regulator, SEBI. FII, who issue PNs, arerequired to report on a monthly basis. The report should reach SEBI by the 7 th day of the followingmonth. PNs cannot be issued within country.It enables large fund houses to carry out operation without disclosing their identity.
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