For the mutual fund industry (though not investors), the headline moment of the Union Budget of 2011 was that it allowed foreign investors to invest in Indian mutual funds directly. The initial reaction then was that not only could this be an important new market for India's mutual funds, it could also enhance the flow of foreign funds into Indian markets. But, before foreign investors set about, they need to submit the combined PAN cum KYC form. There are two routes (shown below) through which they can make their investments.
Setting the ball rolling
After almost a year of the Securities and Exchange Board of India (SEBI) coming out with guidelines concerning foreign nationals wanting to invest in the Indian mutual fund industry, Reliance Mutual Fund has become the first fund house to specify procedures for purchase and redemption of its funds by foreign investors directly. It is for those who meet the 'Know Your Client' (KYC) norms but are not registered with SEBI as foreign institutional investors (FIIs) or a sub-account thereof.
What the Sebi stipulated:
* Qualified foreign investors (QFIs) can buy equity and debt funds
* Investment in equity funds capped at $10 billion
* Investment in debt plans capped at $3 billion
* Foreign investors can buy mutual fund schemes via direct or indirect route (See images)
* Registered FII, sub-accounts cannot be qualified foreign investors
* Mutual funds to report foreign investors' purchases and redemptions daily
* Foreign investors cannot avail systematic investment plans (SIPs)
* Foreign investors not to get systematic transfer plans (STP) or withdrawals plans (SWP)
* Mutual funds to cut tax at source (TDS) on redemption by foreign investors
* Units held by foreign investors will be non-transferable, non-tradable and cannot be pledged or lien cannot be created for such units.