Banks seek Sebi nod for QFI investments in mutual funds

Over half a dozen Indian banks are gearing up to accept funds from qualified foreign investors (QFI) for investment in equity and debt schemes offered by mutual funds in India.

Banks including State Bank of India, HSBC, Citi, Standard Chartered Bank, HDFC Bank and Deutsche Bank have sought permission of the market regulator Security and Exchange Board of India (Sebi) for collecting subscriptions from QFIs to invest in mutual funds.

The banks will act as depository participants (DP) for the QFIs for opening a demat account. In August, the finance ministry permitted QFIs to invest up to $13 billion in equity and debt schemes of local mutual funds.

A QFI is basically an individual or a group or association of residents in a foreign country, who can give sufficient proof to banks or regulated brokerages to open an account.

As per the ministry?s rules, a QFI can open only one demat account with any one of the qualified DPs and shall subscribe and redeem through that DP only.

The purchase transaction would work like this: a QFI places a purchase order of MF scheme with its DP; DP forwards the order to the concerned MF, and in the final leg, MF shall process the order and credit units into the demat account of QFIs.

QFI has been carved out as a separate category to widen the class of investors in India. QFIs would not include FIIs and their sub-accounts.

Finance ministry officials expect the funds coming through QFI route will be more stable as these are retail funds, in contrast to FII money.

QFIs are allowed to invest up to $10 billion in equity schemes of the mutual funds, and another $3 billion in debt schemes, which invest in infrastructure debt of minimal residual maturity of five years in corporate bonds issued by infrastructure companies.

For mutual funds, besides widening the investor base, it would also give them access to international investors. The Indian mutual fund industry?s average assets under management was about R7.17 lakh crore for the quarter ended September 2011.

QFIs can buy mutual fund units through two routes. They can open a demat account with a local depository participant, or can place an order with an overseas depository in a foreign country.

In the second option, they will get Unit Confirmation Receipts (UCR), which they can encash in their own currency.