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1. Who is Qualified Foreign Investors (QFI)?
QFIs shall include individuals, groups or associations, (i) Resident in a Country that is a member of Financial Action Task Force (FATF) or a country that is a member of a group which is a member of FATF and (ii) resident in a country that is a signatory to IOSCO’s MMOU (Appendix A Signatories) or a signatory of a bilateral MOU with Securities and Exchange Board of India (SEBI). QFIs do not include FIIs/Sub accounts/ Foreign Venture Capital Investor.
2. Whether a Foreign Institutional Investor (FII) its sub account or NRI may be a QFI?
Yes, if the NRI is a resident outside India in a country which satisfies the QFI definition. However, he cannot maintain investment accounts as NRI (NRE/NRO) and QFI simultaneously. A FII or its sub-account cannot be a QFI.
3. Can a Non Resident Indian (NRI) make investments by opening a demat account through QFI Route.
An NRI cannot make investments simultaneously through the QFI route and Portfolio Investment Scheme (PIS) route. However, an NRI can open demat account as QFI and make investments through this route provided he has closed all his demat account(s) opened as an NRI.
4. Can the same person/ entity make investments through Foreign Direct Investment (FDI) and QFI routes?
Yes. The same person/ entity can make investment through FDI and QFI route. However, where a person invests in a company through both FDI and QFI route, the aggregate holding of such person in the company shall not exceed five percent of paid up equity capital of the investee company at any point of time. This limit shall be applicable to each class of equity shares having separate and distinct International Securities Identification Number (ISIN). This shall be subject to guidelines on FDI as prescribed by Government of India (GOI) and Reserve Bank of India (RBI) from time to time.
5. Is there any cap on the maximum shareholding limit by QFI?
Yes. The total shareholding by a QFI cannot exceed five percent of the paid up equity capital of any investee company at any point of time. This limit shall be applicable to each class of equity shares having separate and distinct ISIN. Further, the aggregate shareholding of all QFIs shall not exceed ten percent of the paid up equity capital of the investee company at any point of time, in respect of each equity share class having separate and distinct ISIN.
6. Who is an Ultimate Beneficial Owner?
The ultimate beneficial owner is the natural person or persons who ultimately own, control or influence a client and/or persons on whose behalf a transaction is being conducted. It also includes those persons who exercise ultimate effective control over a legal person or arrangement. A Beneficial Owner is a person who has a controlling ownership interest in an entity. In case of a company, controlling interest means ownership/entitlement to mre than 25% shares or capital or profits the company. In case of partnership or other association, controlling ownership interest means ownership/entitlement to more than 15% of the capital or profits of the partnership or association.
7. Whether every company registered in any foreign country can invest as QFI?
No. In the case of non-natural person its ultimate / end beneficial owners should be identified and they should also be eligible as QFI. In other words, those who are not QFIs as natural persons cannot become QFI by merely organizing themselves in a company or partnership firm. In case of a multi-layered company, i.e., where shares of ‘X’ company are held by ‘Y’ company and the shares of ‘Y’ company are held by ‘Z’ company, the natural shareholders of X, Y and Z companies will have to be identified so as to find out the natural persons for whose benefit this entire edifice is to work.
8. Whether the QFI’s overseas bank account should be in the same country?
It is not necessary that QFI’s bank account should be in the country of his residence. However, the bank account should be (a) in an AML and CFT compliant country; and (b) IOSCO member country. It is better that the client and his bank both meet the AML and IOSCO criteria.
9. Can the same set of ultimate beneficial owner(s) use multiple routes to channelize investments in Indian equities?
No. Except for FDI, the same set of ultimate beneficial owners(s), who intend to make investments through the QFI route, shall not directly or indirectly channelize investments simultaneously into Indian equities using any other available route such as NRI, FII, Sub Account or FVCI.
10. Are QFIs required to obtain PAN Card to comply with tax norms in India?
Yes. Under the current provisions, QFIs would be required to obtain PAN card. The process of obtaining a PAN card is simple and user friendly. An application can be filed by a foreign investor online and the process can be completed within 2 to 3 week.
11. In which market QFI can invest?
QFI can invest in Equity Secondary Market – Exchange Traded securities, Mutual Funds and Equity Primary Market i.e. IPO and FPO.
12. Which documents are required to open a Trading Account?
Copy of passport or PIO card for individual, Form 49AA for issue of PAN Card, Address Proof and Foreign Bank account statement with Account Opening Form is required from individuals. In case of corporate, partnership firms and other non-individuals, copies of passport/PIO card and address proof are required in case of authorized signatories as well as (i) bank statement (ii) constitutional documents (iii) bank resolution for investment in securities (iv) last two years' balance sheet (v) latest shareholding pattern and (vi) list of significant shareholders, partners and members (as the case may be) are required. Copies of all documents should be self attested and be verified from originals either by the QDP official or by entities authorized for attesting the documents.
13. Is there any restriction on QFI to open more than one QDP Demat account?
Yes. At any point of time a QFI can maintain only one demat account with any of the qualified DPs. Further, purchase and sale of all eligible securities should be transacted through that demat account only.
14. Can a QFI directly place order with a stock broker?
No. A QFI cannot directly place order with a stock broker. The purchase/sale orders have to be placed with the qualified DP only.
15. What will be the relationship between the QFI and his stock broker?
The QFI and his stock broker shall share the client broker relationship. For this purpose, the QFI shall fulfill the requisite formalities, as prescribed, from time to time.
16. Can a QFI directly interact with a stock broker?
Yes. A QFI can directly interact with a stock broker provided the stock broker itself is the qualified DP or the stock broker has an arrangement with qualified DP for order routing, execution, confirmation, and reporting of trades.
17. Can QFIs open bank account in India?
Yes. A QFI may open a single non-interest bearing Rupee account with an Authorized Dealer Category –I bank in India subject to terms and conditions specified under FEMA, 1999 from time to time. The QDP shall operate this single non-interest bearing Rupee account for all investments made by QFI in India.
18. Should QFIs remit funds before making purchase?
Yes. Funds should be received in the single non-interest bearing rupee account of the QFI before execution of the purchase order. The transactions by QFI are required to be pre-funded.
19. Is the investment through the QFI route freely repatriable?
Yes. The investment made through the QFI route is freely repatriable, subject only to payment of applicable taxes.
20. Is it necessary for QFIs to appoint a local custodian in India?
QFIs are not mandated to appoint local custodian in India. However, in case a QFI wishes to appoint a custodian he may do so. A custodian of securities, if so, appointed by QFI, will have to perform clearing and settlement of securities on behalf of the QFI client. However, no person shall be appointed as custodian by the QFI unless it is itself the qualified DP of the QFI and is also registered as custodian with SEBI under SEBI (Custodian of Securities) Regulations, 1996.
21. Whether QFIs are allowed to do off market securities transfer?
No. QFIs cannot transfer securities off market. However, while changing the QDP, a QFI may transfer his securities from his demat account maintained with transferor qualified DP to the transferee qualified DP.
22. Can QFIs change their designated overseas bank account?
Yes. QFIs can change their overseas designated bank account. However, at any given point of time, there can be only one designated overseas bank account of the QFI through which funds are transferred to the Individual bank account of QFI in India.
23. Is there any minimum lock-in period for investment made by QFI?
No. There is no minimum lock-in period for investment made by QFI.
24. Can QFIs engage in borrowing or lending of funds or securities?
No. QFIs cannot engage in borrowing or lending of funds or securities.
25. Whether a QFI can issue off-shore derivative instruments, participatory notes etc. against the shares held in his QDP Account?
No. A QFI is not permitted to issue a derivative instrument against investments under the QFI Scheme.
26. Can QFIs hedge their currency risk in investment in Indian Securities and IPOs?
Yes. The RBI has permitted to QFIs Forward foreign exchange contracts with rupee as one of the currencies and foreign currency-INR options to hedge the currency risk on the market value of entire investment in equity and/or debt in India as on a particular date. RBI has also permitted Foreign Currency – INR swaps for IPO related flows. For further details please see RBI/2012-13/185 A. P. (DIR Series) Circular No. 21 dated August 31, 2012.
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