1. QFI (Qualified Foreign Investor)
Who are QFI’s?
Definition
Para 3.1 of SEBI circular Cir/IMD/DF/14/2011 dated August 09, 2011 defines QFI‘s as follows:
Qualified Foreign Investor (QFI) shall mean a person resident in a country that is compliant with
Financial Action Task Force (FATF) standards and that is a signatory to International
Organization of Securities Commission's (IOSCO‘s) Multilateral Memorandum of
Understanding (MMOU).
Provided that such person is not resident in India,
Provided further that such person is not registered with SEBI as Foreign Institutional Investor or
Sub account.
Explanation - For the purposes of this clause:
(1) the term "Person" shall carry the same meaning under Section 2(31) of the Income Tax Act,
1961
(2) the phrase ―resident in India‖ shall carry the same meaning as in the Income Tax Act, 1961
(3) ―resident‖ in a country, other than India, shall mean resident as per the direct tax laws of that
country.
Section 2(31) of the Income Tax Act, 1961 defines person as follows-
"Person" includes—
(i) an individual,
(ii) a Hindu undivided family,
(iii) a company,
(iv) a firm,
(v) an association of persons or a body of individuals, whether incorporated or not,
(vi) a local authority, and
(vii) every artificial juridical person, not falling within any of the preceding sub-clauses.
[Explanation.—For the purposes of this clause, an association of persons or a body of individuals
or a local authority or an artificial juridical person shall be deemed to be a person, whether or not

2. such person or body or authority or juridical person was formed or established or incorporated
with the object of deriving income, profits or gains;]
The RBI circular provides that SEBI registered FIIs and FVCIs would not qualify as a QFI.
However, the SEBI circular only provides that a registered FII or sub-account would not be
eligible to qualify as a QFI, and has no mention of FVCI‘s. This discord amongst the rules
prescribed by the two regulators continues to prevail under the New FDI Policy, which bars both,
FIIs and FVCIs from qualifying as a QFI.
The QFIs shall include individuals, groups or associations, resident in a foreign country
which is compliant with FATF and that is a signatory to IOSCO’s multilateral MoU. QFIs
do not include FII/sub-accounts and FVCI’s.
List of common countries that are FATF compliant and are signatories of IOSCO Multilateral
MOU1
1. Australia 2. Finland
3. Luxembourg 4. South Africa
5. Austria 6. Germany
7. Mexico 8. Spain
9. Belgium 10. Greece
11. New Zealand 12. Sweden
13. Brazil 14. Hong Kong
15. Norway 16. Switzerland
17. China 18. India
19. Portugal 20. Turkey
21. Denmark 22. Italy
23. Japan 24. Republic of Korea
25. United Kingdom 26. France
1
http://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/taxnewsflash/Documents/india2-jan-
19-2012.pdf

3. 27. Kingdom of the Netherlands 28. Singapore
29. United States of America
Procedure of Recognition
Eligible transactions for QFI
The DP shall ensure that transactions of QFI are limited only to the following:
Purchase of equity shares in public issues, to be listed on recognised stock exchange(s).
Purchase of listed equity shares through SEBI registered stock brokers, on recognized
stock exchanges in India.
Sale of equity shares which are held in their demat account through SEBI registered stock
brokers.
Purchase of equity shares against rights issues.
Receipt of bonus shares or receipt of shares on stock split/ consolidation.
Receipt of equity shares due to amalgamation, demerger or such other corporate actions,
subject to the investment limits.
Receipt of dividends.
Tender equity shares in open offer in accordance with SEBI (Substantial Acquisition of
Shares and Takeovers) Regulations, 2011.
Tender equity shares in open offer in accordance with SEBI (Delisting of Equity Shares)
Regulations, 2009.
Tender equity shares in case of buy-back by listed companies in accordance with SEBI
(Buyback of Securities) Regulations, 1998
In order to invest they will hold equity shares in a demat account opened with a SEBI
registered qualified Depository Participant.
Key features of new QFI scheme
The QFI regime was introduced on January 13, 2012 by the Securities Exchange Board of India
(―SEBI‖) vide Circular No. CIR/IMD/FII&C/3/2012 and the RBI vide A.P. (DIR Series)
Circular No. 66, which permitted qualified foreign investors to directly invest into listed equity

4. of Indian entities, subject to certain conditions. The New FDI Policy has also included within its
folds this new regime .The following are inter alia the key features of the new QFI regime2:
 The investment by QFIs in a company is subject to an individual investment limit of
5% and an aggregate investment limit of 10%. These limits are to be reckoned over
and above the FII and NRI portfolio investment limits, however, the investment continues
to remain subject to the sectorial caps prescribed by the RBI and the DIPP.
 RBI would grant general permission to QFIs for investment under Portfolio Investment
Scheme (PIS) route similar to FIIs.
 The investment by QFI is subject to such QFI meeting the ‗know your client‘ (―KYC‖)
requirements prescribed by SEBI. For the purposes of KYC, the ultimate beneficiary
would be looked at and the responsibility of obtaining the KYC information and ensuring
that the QFI complies with the prescribed norms and regulations has been imposed on the
depository participant.
 QFIs shall be allowed to invest through SEBI registered Qualified Depository Participant (DP).
A QFI shall open only one demat account and a trading account with any of the qualified DP. The
QFI shall make purchase and sale of equities through that DP only.
 DP shall ensure that QFIs meet all KYC and other regulatory requirements, as per the relevant
regulations issued by SEBI from time to time. QFIs shall remit money through normal banking
channel in any permitted currency (freely convertible) directly to the single rupee pool bank
account of the DP maintained with a designated AD category - I bank. Upon receipt of
instructions from QFI, DP shall carry out the transactions (purchase/sale of equity).
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http://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/taxnewsflash/Documen
ts/india2-jan-19-2012.pdf
Background
In 2011, the Government of India (‗GOI‘) announced its intention to widen the
class of foreign investors investing in Indian financial markets. The Indian
2
http://pib.nic.in/newsite/erelease.aspx?relid=79306

5. Finance Minister in his Budget speech then, announced that foreign investors
would be allowed to invest in domestic Mutual Funds (‗MFs‘) schemes.
Accordingly, the Securities and Exchange Board of India (‗SEBI‘) and the
Reserve Bank of India (‗RBI‘) issued Circulars on 9 August 2011 allowing
Qualified Foreign Investors (―QFIs‖) complying with the Know Your Customer
(‗KYC‘) norms to invest in equity and debt schemes of domestic MFs.
On 1 January 2012, the GOI issued a press note stating that QFIs will now be
allowed to invest in the equity shares of Indian companies. Both the market and
banking regulators have issued detailed Circulars on 13 January 2012
operationalizing the Scheme for investment by QFIs in Equity Shares.
In the following paragraphs, we highlight the key features of the regulations
allowing QFIs to directly invest in Indian equity shares.
Investment Restrictions and Limits
QFIs can transact in Indian equity shares only on the basis of taking and giving
delivery of shares purchased or sold
QFIs are not permitted to issue offshore derivatives instruments/ participatory
notes
The total shareholding by an individual QFI shall not exceed five percent of
paid up equity capital of the company at any point of time. This investment limit
shall be apply to each class of equity shares
The aggregate shareholding of all QFIs shall not exceed ten percent of paid

6. up equity capital of the company at any point of time, in respect of each class of
equity shares
The limits are over and above the FII and NRI investment ceilings prescribed
under the Portfolio Investment Scheme. However, where composite sectoral
caps are prescribed under the FDI policy, the limits for QFI investments shall be
within such overall limits
In case the aggregate shareholding of the QFIs exceeds the limit of ten percent
for whatsoever reason, the QFI due to whom the limit is breached shall
mandatorily divest excess holdings within three working days of such breach
being notified by depositories to the DP.
Process Flow for Purchase of Equity Shares
Step 1 QFI places a purchase order with the DP mentioning the name of
the company and ISIN, number of equity shares, name of the stock
broker and transfers the foreign inward remittance from designated
overseas bank account to single rupee bank account of the DP in
any permitted currency (foreign convertible)
Step 2 DP forwards the purchase order and remits money to the SEBI
registered stock broker
Step 3 If QFI is unable to purchase equity shares within five working days
of inward remittance (including the date of receipt of foreign inward
remittance into single rupee bank account), DP immediately returns
the money to the designated overseas bank account of QFI
Step 4 DP ensures credit of equity shares purchased in QFI‘s demat
account on the pay-out-date.

7. See the flow chart available on
http://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/taxnewsflash/Documen
ts/india2-jan-19-2012.pdf (on page 5 & 6) for better understanding.
QFIs Responsibilities and Obligations
The QFI in order to invest directly in the Indian equity market shall ensure
compliance of the SEBI and RBI Circulars / guidelines. Following is the brief
summary of QFIs responsibilities and obligations in this regard.
Account Opening
 QFIs who meet prescribed KYC requirements can invest in equity shares
listed on the recognized stock exchanges and in equity shares offered to
public in India
 QFIs to comply with all the requirements as per PML Act, rules and
regulations, FATF standards and SEBI circulars issued in this regard, from
time to time on an ongoing basis
 QFI shall not issue offshore derivatives instruments / participatory notes
 QFI shall, in relation to its activities as QFI, at all the times, subject
themselves to the extant Indian laws, rules, regulations, circulars etc., from
time to time
Transactions
 A QFI can open only one demat account with any one of the DPs and shall
make purchase and sale of equity shares through that DP only
 A QFI can open trading accounts with one or more SEBI registered stock
brokers
 The transacti ns of QFIs, for all purposes, shall be treated at par with that of
o
Indian non institutional investors with regard to margins, voting rights, public

8. issues etc
Reporting
 The QFI shall, as and when required by the Government, SEBI or any other
regulatory agency in India, submit to that agency, as the case may be, any
information, record or documents in relation to its activities as QFI
 QFI to notify information of any penalty, pending litigations or proceedings,
findings of inspections or investigations for which action may have been
taken or is in the process of being taken by an overseas regulator against
QFI forthwith, to the attention of SEBI, depositories and stock exchanges
Income-tax
 Each QFI shall obtain a separate and distinct PAN.
Particulars FII QFI
Mutual Fund Equity Shares
Schemes
Eligible Investors - Institutional Only QFIs from Only QFIs from
Investors viz asset jurisdictions jurisdictions which
management which are FATF are FATF
company, compliant and compliant and
investment with which with which SEBI
manager, mutual SEBI has has signed MOUs
fund, pension fund signed MOUs under the IOSCO
etc. under the framework will be
IOSCO eligible to invest
- Foreign framework will (other than FII,
individuals (other be eligible to sub-account,
than NRIs) - subject invest (other FVCI, NRI)
to minimum net than FII, subaccount,
worth criteria of FVCI,
USD 50 million NRI)
SEBI Registration Required Not required Not required
Type of securities / -Securities in Equity and debt - Equity shares
investment primary and schemes of listed on the
secondary markets Mutual Funds recognized stock
including shares, exchanges
debentures and
warrants - Equity shares
offered to public

9. -Units of domestic in India
Mutual Fund‘s
schemes, derivates
traded on
recognised stock
exchange etc.
Individual Investment - Investment in 5 percent of paid
Limits equity shares by FII up capital of
investing on his own Indian Company
account – 10
percent.
-Investment in
equity shares by FII
investing on behalf
of each subaccount–
10
percent.
- Investment by
each sub-account of
foreign corporate /
individuals – 5
percent
Aggregate Investment Aggregate ceiling -Equity schemes 10 percent of paid
Limits for all FIIs / – aggregate up capital of
subaccounts of all investment by Indian Company
FIIs – 24 percent; QFIs under direct
can be increased and indirect route
up to sectoral cap restricted to USD
pursuant to 10 billion.
passing of
specific - Debt schemes in
resolutions infrastructure –
overall ceiling of
USD 3 billion
within existing
ceiling of USD 25
billion for FII
investment in
corporate bonds
Issue of offshore Permitted Not Permitted Not Permitted
derivatives
instruments/participatory
notes

10. ………………
In a circular issued by the finance ministry on May 29, the government allowed QFIs to open
bank accounts in India.
―It has now been decided to allow QFIs to open individual non-interest bearing rupee accounts
with Authorised Dealers banks in India for receiving funds and making payment for transactions
in securities they are eligible to invest,‖ said the circular.
However the RBI is yet to issue a direction to banks. ―These guidelines under FEMA, 1999 are
being finalised in consultation with the government and Sebi and will be issued in due course,‖
said the RBI in an e-mail response to The Indian Express.
http://www.financialexpress.com/news/wooing-qfis-all-right-but-hurdles-remain/970410/2
……………..
Name of prevalent QFI’s operating in India:
The government's efforts to attract investments from Qualified Institutional Investors have
started yielding results, albeit slowly, with one QFI opening an account to invest in the markets
here.
"First account under QFI has been opened," said Bombay Stock Exchange (BSE) Interim CEO
Ashish Kumar Chauhan at an event organised by Assocham here.
He, however, did not identify the QFI.
http://www.businessworld.in/businessworld/businessworld/content/First-Qualified-Institutional-
Investor-Opens-Account-BSE.html