India: QFIS: The New Investment Route Of Choice

Last Updated: 13 August 2019
Article by Ashish Kabra and Kishore Joshi

In light of the recent press release of the Ministry of Finance dated May 29, 2012 on Qualified Foreign Investors , we are organizing an interactive audio call to provide our views and insights.

Speaker: Mr. Siddharth Shah

Date: Wednesday, June 6, 2012

Time: 6:00 p.m. (IST)


Primary Number: +91 22 6629 0347

Secondary Number: +91 22 3065 0347

RSVP: Mr. Gaurav Bhandari


The Qualified Foreign Investor ("QFI") route was initially introduced by the Securities Exchange Board of India ("SEBI") vide Circular No. CIR/ IMD /DF / 14 /2011 dated August 9, 2011 whereby QFIs were permitted to invest in mutual fund schemes. Following on from the U K Sinha committee recommendations in 2010, the idea was to bring about disintermediation of the capital markets and to provide direct access to foreign investors, albeit through mutual funds. Following this policy and to widen the class of investors, reduce market volatility and to deepen the Indian capital market, the Ministry of Finance ("Ministry") had vide press release dated January 1, 2012 ("January Press Release") 1 permitted QFIs to invest directly into the Indian equities market. In pursuance to the January Press Release, on January 13, 2012 SEBI vide Circular No. CIR/IMD/FII&C/3/2012 ("SEBI Circular") 2and the Reserve Bank of India ("RBI") vide A.P. (DIR Series) Circular No. 66 ("RBI Circular") 3 formalized the scheme for investment by Qualified Foreign Investors ("QFIs") in equity shares of Indian companies.

This marked the opening of a completely new route for investors allowing direct access to listed Indian equity, without getting them registered with the SEBI or the RBI. However, the route in effect failed to take of due a number of reasons. The route was fraught with uncertainty and ambiguity. There was lack of clarity on various aspects especially for the qualified depository participants ("QDP") on whose shoulders SEBI had placed the entire responsibility for ensuring compliance with the regulations and laws. The QDPs were wary of how to comply with the cumbersome administrative responsibilities imposed on them by the SEBI and the route received a highly negative feedback from the market, to the extent that the QFI route was practically never exercised by any of the foreign investors.

Thus to augment the foreign inflows which have been dwindling over the last several months and to rationalize the route, based on the market feedback the Ministry has now vide press release dated May 29, 2012 ("Press Release")4 taken various measures to remove the bottlenecks and stimulate foreign investments via this route.


QFI investment in corporate bonds:

The Press Release incorporating the budget proposal for QFIs, has permitted QFIs to invest in corporate bonds and mutual fund debt schemes. A separate sub-limit of USD 1 billion has been created for the purposes of QFI investment in such corporate bonds and mutual fund debt schemes.

This shall clearly provide a fillip to foreign inflows. There is a significant appetite for debt investments amongst the foreign investors, especially the high net worth individuals ("HNIs"), who are enticed by the high level of interest rates and returns that debt investments offer. The QFI route shall provide a direct option to the foreign investors who were previously forced to invest in non – convertible debentures listed on the stock exchange through the foreign institutional investments route. What is however not clear from this press release is as in case of FIIs who are permitted to invest into listed or to be listed corporate bonds, whether QFIs would be allowed to invest in unlisted corporate bonds. RBI circular in this regard will be important to get clarity on the above.

Widening of QFI Compliant Jurisdiction:

There was a lot of ambiguity surrounding the jurisdictions, the residents of which would be eligible to qualify as a QFI. For a resident of a particular jurisdiction to qualify as a QFI, the country was required to be a signatory to the International Organization of Securities Commission's ("IOSCO's") Multilateral Memorandum of Understanding and be compliant with the Financial Action Task Force ("FATF") standards.

SEBI was of the view that only the 34 FATF member states would be regarded as compliant with FATF standards for the purposes of the QFI definition. This gave rise to a lot of heat and debate as there are a significant number of jurisdictions which are compliant with the FATF standards, but are not a direct member of the FATF. The understanding significantly limited the use of the route and left out a number of important jurisdictions from where the foreign investment would have come in. The European Commission ("EC") and the Gulf Cooperation Council ("GCC") as a body are members of FATF and not every country which is member of the EC and GCC in its individual capacity is an FATF member. Thus lot of uncertainty was prevailing on whether the member countries of such bodies would satisfy the QFI requirement in accordance with regulatory view.

The Government has now under the Press Release clarified that the residents of the 6 member countries of the GCC5 and the 27 member countries of the EC6 would be eligible to be considered as QFIs. This is a significant change as it substantially widens the QFI route incorporating within its folds a number of important jurisdictions. Countries such as Cyprus which have favorable tax treaties with India are now eligible jurisdictions under the QFI route. Needless to say, Mauritius as a jurisdiction in spite of its strong KYC and money laundering laws would still remain out of bound from a QFI perspective.

Removal of 5 day limit:

Previously under the SEBI Circular, the funds remitted in the Indian rupee account by a QFI for investments was required to be transferred to the designated overseas bank account of the QFI, if such funds were not invested within five working days of the receipt of funds in their accounts. This was seen as a serious hindrance for both (i) the QDPs, as an administrative hassle as they were responsible for ensuring that the money is immediately remitted back to the designated overseas account of the QFI after five days and (ii) the QFIs, as they became highly prone to the exchange rate fluctuations.

The Ministry has now under the Press Release decided to dispense with this limit of five days, allowing the QFI to have the freedom to retain the amounts in the account in India, reducing the high cost of transfer of funds that otherwise was acting as a serious hindrance for QFI investments. This also brings parity with the FII route wherein FIIs are free to retain the funds in the designated rupee account without any time restriction on repatriation.

Freedom to open a separate account:

Previously, the QFIs were allowed to invest only through the rupee pool bank account of their QDP. This was not appreciated by the foreign investor as their monies were pooled at the QDP level and kept along with the investments of other QFIs. Also, this put the onus of withholding the tax on the QDPs creating a huge liability risk. The Press Release now permits QFIs to open separate individual non-interest bearing Rupee Bank Account with Authorized Dealer banks in India to undertake transactions under this route. This provides a significant comfort to the QDPs who were previously highly apprehensive about how to deal with the withholding obligation as each QFI depending on the jurisdiction they were coming from would be subject to a different withholding rate. Also, this now provides clarity in case of interest payments on debt investments made by QFIs.

Lastly the Press Release requires the regulators i.e. SEBI and the Reserve Bank of India to come out with the relevant circulars to incorporate and operationalize the changes. Also, the Central Board of Direct Taxes is required to issue relevant clarifications pertaining to the tax related issues, especially on the withholding obligations.


Though the QFI route had been introduced almost 10 months back with the intention to increase the level of foreign investments into India, the route never took off and remained unutilized. This Press Release is a strong indicative that the government of India has recognized the initial failure of the route and has positively acted on the feedback obtained from the market players. We hope that this relaxation in the QFI regime encourages the foreign investors to commence investing in India.









Co-authored by Siddharth Shah 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions