Formalising a move to increase capital inflows in the economy, market regulator Securities and Exchange Board of India (Sebi) on Tuesday said foreign investors (qualified foreign investors or QFIs) will be permitted to invest up to $13 billion per year in equity and debt schemes of mutual funds (MFs).
"The aggregate investments by QFIs under both the routes (direct and indirect) shall be subject to a total overall ceiling of $10 billion for equity schemes," the market regulator said in a circular.
It said QFIs can hold units in a demat account through a depository participant (direct route) or via unit confirmation receipts that will require domestic MFs to open foreign currency accounts (indirect route).
QFIs can invest up to $3 billion of debt funds that invest in at least 5-year infrastructure-related debt.
Finance minister Pranab Mukherjee had announced in this year's budget that foreign investors would be allowed to invest in equity schemes of MFs. So far only foreign institutional investors (FIIs) and overseas Indians were allowed to buy units of domestic mutual funds.
SEBI said QFIs can buy units of equity or debt funds in the primary market, but cannot trade in the secondary market.
The regulator also said that when the cumulative QFI investment reaches $8 billion in equity schemes, SEBI would auction the remaining limit to foreign investors who can then buy the units from funds of their choice.