The government plans to set up a new investor class to encourage the flow of foreign funds into mutual funds.
The move would enable the sector to have direct access to foreign investors and widen the class of foreign investors in the Indian equity market.
Under the proposed norms, qualified foreign investors (QFIs), or overseas individual investors registered with depositories either in India or abroad can take the mutual fund route to invest in the Indian stock market.
“We are looking at two routes for allowing foreigners in MFs,” a senior finance ministry official said.
The government is exploring the idea of allowing QFIs registered with depository participants to invest in funds directly and also through the unit confirmation receipt (UCR) system. Under the proposed UCR system, a foreign investor can go to depositories in his home country and place orders on custodian banks in India. The custodian banks will look into the MFs and issue UCRs against them.