What changed
Previously, only SEBI-registered FIIs, FVCIs, and NRIs could invest in domestic MF units on a repatriation basis. Now, non-resident investors meeting SEBI KYC requirements (QFIs) are also allowed to invest in rupee-denominated equity scheme units of domestic MFs. The new scheme operates under a USD 10 billion aggregate ceiling (with an additional USD 3 billion for infrastructure debt schemes) and offers two routes: the DP route and the UCR route.
What it means for you
Banks acting as AD Category I will need to handle single rupee pool accounts for DPs under the direct route, ensuring timely remittances and repatriations. The USD 10 billion cap (plus USD 3 billion for infrastructure debt) requires daily monitoring by SEBI, so banks must coordinate with DPs and MFs to track inflows. This expands the investor base for domestic MFs, potentially increasing fund inflows and foreign participation in Indian equity markets.
What you must do
- Set up and maintain separate single rupee pool bank accounts for DPs under the direct route, ensuring same-day or next-day remittance to MFs.
- Verify that QFIs are from FATF-compliant jurisdictions and signatories to IOSCO's Multilateral MoU.
- Ensure KYC compliance for QFIs as per SEBI norms, both at DP and MF levels.
- Monitor the USD 10 billion aggregate ceiling in coordination with SEBI and domestic MFs.
- Process redemption proceeds within two working days and repatriate to QFI's overseas account, allowing reinvestment within that period.
Who it affects
AD Category I banks, SEBI-registered Depository Participants, Domestic Mutual Funds, Qualified Foreign Investors
What is the investment limit for QFIs under this scheme?
The aggregate investment by all QFIs is capped at USD 10 billion, monitored daily by SEBI. This includes amounts in the single rupee pool bank accounts of DPs.
Can QFIs trade these mutual fund units in the secondary market?
No, units and UCRs issued under this scheme are non-tradable and non-transferable. Investments must be in directly issued units from domestic MFs.
How are dividends paid to QFIs handled?
Dividends must be directly remitted to the QFI's overseas account by the domestic MF. They cannot be credited to the DP's single rupee pool bank account.