The government on Sunday allowed foreign retail and small investors to directly trade in Indian stock markets, a move aimed at bolstering fund inflow into Indian shares.
A finance ministry statement on Sunday said the government has decided to allow qualified foreign investors (QFI) to directly buy Indian equities.
A QFI is an individual, group or association resident in a foreign country that adheres to anti-money laundering and anti-terrorist financing guidelines as defined by the financial action task force (FATF), a multi-lateral body.
The decision to allow foreign individuals to trade in stock exchanges directly is aimed at widening the class of investors, attract more foreign funds, reduce market volatility and to deepen the Indian capital market, the statement said.
At present, India allows only wealthy foreign individuals or high networth individuals (HNIs) who have a minimum net worth of $50 million (about R260 crore) and registered as a sub-account of a foreign institutional investor (FII) to invest directly in local equities.
Other foreign individuals were allowed only indirect access to Indian equities by purchasing units of domestic mutual funds.
Under the new scheme, which will be operationalised by Janruary 15, QFIs will be allowed to directly buy or sell Indian equities by merely opening a demat account with an intermediary or a depository participant authorised by the capital market watchdog Securities Exchange Board of India (SEBI).
SEBI and the Reserve Bank of India will issue the appropriate circulars shortly.
“Today’s decision is a next logical step in the direction,” the statement said. “The scheme is expected to help increase the depth of the Indian market and in combating volatility besides increasing foreign inflows into the county.”
The individual and aggregate investment limit for QFIs shall be 5% and 10% respectively of the paid up capital of Indian company. These limits will be over and above the FII and NRI investment ceilings prescribed for foreign investment in India.
Foreign individuals will be allowed to remit money in any freely convertible currency — such as the US dollar, the Euro, British Pound Sterling, French Franc — through normal banking channels.