India allowed foreign investors to participate in local mutual funds,
allowing them to invest up to USD 10 billion and expanding the capital
flow channels into equities markets.
In separate statements, the Reserve Bank of India and the capital
markets regulator Securities and Exchange Board of India, said that
non-resident investors who met SEBI's know-your-customer requirements
would also be allowed to invest in debt schemes run by mutual funds
which were targeted at the infrastructure space.
SEBI said that Qualified Foreign Investors (QFIs) can buy equity or debt fund units in the primary market, but would not be allowed to trade in the secondary market.
QFIs will also be allowed to buy another USD 3 billion worth of debt
schemes, which invest in bonds of tenure of at least 5 years in the
infrastructure sector. If the cumulative QFI investment reaches USD 8
billion in equity schemes or USD 2.5 billion in debt funds, SEBI would
auction the remaining limit to foreign investors. However, the QFI
ceiling on debt funds will be within the overall ceiling of USD 25
billion set by the Reserve Bank of India earlier for foreign investments in corporate bonds issued by infrastructure companies.
Permitting foreign investors into the domestic mutual fund market was
part of the budget proposals for 2010-11. But allowing mutual funds to
accept overseas money into debt schemes was the result of a meeting top between top industrialists and Finance Minister Pranab Mukjherjee.
"The government accepted this recommendation and held a series of
discussions with the regulators to give QFIs access to mutual fund debt schemes investing in infrastructure," said the ministry. "The QFI scheme will make it easier for overseas investors to participate in the infrastructure sector projects in India, and therefore would provide an additional source of overseas long term debt funding," it added.