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September 2011

A.P. (DIR Series) Circular No. l8, dated 9-8-2011 — Investment in units of Domestic Mutual Funds.

By Gaurang Gandhi, Chartered Accountant
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Presently, a SEBI-registered Foreign Institutional Investor (FII) and a Non-Resident Indian (NRI) can purchase on repatriation basis, subject to such terms and conditions, units of domestic Mutual Funds (MFs). This Circular has now created a new category of Non-Resident Investors — ‘Qualified Foreign Investors’ (QFI). QFI are non-resident investors, other than SEBI-registered FII and SEBI-registered FVCI, who meet the Know Your Ctomer (KYC) requirements prescribed by SEBI.

A QFI can purchase, on repatriation basis:

(1) Up to INR620 billion in Rupee-denominated units of equity schemes of SEBI-registered domestic Mutual Funds.

(2) Up to INR186 billion in units of debt schemes which invest in infrastructure (‘Infrastructure’ as defined under the extant ECB guidelines) debt of minimum residual maturity of five years, within the existing ceiling of 25 billion for FII investment in corporate bonds issued by infrastructure companies.

They can invest under two routes:

(i) Direct Route — SEBI-registered Depository Participant (DP) route.

(ii) Indirect Route — Unit Confirmation Receipt (UCR) route.

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