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Qualified Foreign Investor (QFI)

If you reside outside India and like many other look at India as an interesting option for investment, here is your chance to invest in the ever buzzing financial markets of India.On 1 January 2012, the GOI issued a press note stating that Qualified Foreign Investors (QFIs) will now be allowed to invest in the equity shares of Indian companies.

We as a SEBI registered Qualified Depository Participant and a Trading Member, with our existing capacity comprising of infrastructure, systems and processes are validated and are privileged to offer DP & trading services to QFI clients like you for investing in mutual funds and equity shares.

QFIs include individuals, groups or associations that are:
  1. Resident in a country that is a member of the Financial Action Task Force (FATF) or a country that is a member of a group which is a member of FATF and

  2. Resident in a country that is a signatory to IOSCO's MMOU - or a signatory of a bilateral MOU with Securities and Exchange Board of India (SEBI).
As per the information available on the websites of FATF and IOSCO as on August 17, 2012, residents of the following countries* are eligible to invest as a QFI as per the definition mentioned above:

Australia Austria Bahrain Belgium Brazil
Bulgaria Canada China Cyprus Czech Republic
Denmark Estonia Finland France Germany
Greece Hong Kong Hungary Iceland Italy
Japan Republic of Korea Lithuania Luxemburg Malta
Mexico Netherlands New Zealand Norway Oman
Poland Portugal Romania Russia Saudi Arabia
Singapore Slovakia Slovenia South Africa Spain
Sweden Switzerland UAE United Kingdom United States of America

* Unless appropriately authorized (OR exempt) by the regulations in the relevant jurisdiction, no Indian custodians & brokers will be able to provide their services.

** Please note that this list is subject to change.

You (A QFI) should neither be a person resident in India, nor be registered with the SEBI as a Foreign Institutional Investor ('FII'), sub-account or Foreign Venture Capital Investor.

You (A QFI) should be set up with a SEBI registered Qualified Depository Participant (QDP) to commence activities whereby the QDP will provide inter alia custody services.

Particulars FII QFI
Investors Permitted Foreign entities like pension funds, mutual funds, insurance companies, investment trusts, banks, asset management companies, investment managers, advisors, institutional portfolio managers, etc. are all considered under the FII category QFI includes individuals, groups or associations, resident in a country that is a member of the FATF or a country that is a member of a group which is a member of FATF or…

  • Resident in a country that is signatory to IOSCO's MMOU or a signatory of a bilateral MOU with SEBI.

  • QFIs do not include FIIs / Sub-Accounts / FVCIs
  • SEBI Registration Required Not required
    SEBI Registration Fee & Tenure (Subject to change by Regulator) FII - US$5,000 for 3 years. Renewal fee is the same.

    Sub-Account - US$1,000. Validity is co-terminuswith the FII registration under which it is registered.
    Not required
    Permissible Transactions All securities in primary and secondary markets including shares, debentures, warrants, etc. issued by companies engaged in the business wherein foreign investment is permitted.
  • Purchase and sale of listed equity shares (delivery-based only), IPOs, rights issues, bonus shares, stock splits, shares received due to corporate actions, dividends, open offer, buy-backs of listed companies and equity schemes of mutual funds.

  • Debt - Purchase and sale of corporate debt securities listed on recognized stock exchanges, purchase of corporate debt securities through public issues, if listing on recognized stock exchange(s) is committed, sale of corporate debt securities by way of buyback or redemption by the issuer, purchase and sale of units of debt schemes of Indian mutual funds.
  • Issue of offshore derivative instruments / participatory notes against shares in India Permitted Not permitted
    Taxation Taxation under advise from local CPA Applicable tax deducted at source by QDP on account of profits / gains / dividends or any other income accruing to or received by QFI. Taxation will be applicable as per CBDT Circular as per the extent rules, regulations and procedures.

  • We will provide investment recommendations depending on your investment motives, risk appetite and other requirements. Additionally, we will provide you access to our in-house research material that will keep you updated and give you quality inputs on the macro-economic scenario in India.

  • We will help you with initial documentation process which would include application for the PAN Card and streamlining the process of opening a non-interest bearing rupee account, DP account and trading account. These procedures can begin only once you have shared the required documents in the desired manner.*

       - Documentation requirements can be understood from the Kotak QFI Desk.

  • As a QFI, you are eligible to:
    • Purchase through SEBI registered brokers, all equity shares that are listed, on recognized stock exchange(s)

    • Apply for equity shares in public issues, to be listed on recognized stock exchange(s)

    • Purchase/subscribe for Indian mutual funds units through Demat Account Mode (Direct Route) and through Unit Confirmation Receipt (Indirect Route)

    • Purchase and sell corporate debt securities listed on recognized stock exchange(s)

    • Purchase corporate debt securities through public issues, if the listing on recognized stock exchange(s) is committed to be done as per the extant provisions of the Companies Act, 1956

    • Purchase and sell units of debt schemes of Indian mutual funds.

  • Restrictions:

       - You can engage in only delivery based transactions of Indian equity shares

       - You are not permitted to trade Offshore derivative instruments / participatory notes against shares in India

       - You can open only one demat account with any one of the QDPs and should purchase and sell equity shares through that QDP only

       - Only those entities whose ultimate / end beneficial ownership is not in India are allowed to open QFI accounts

       - You are not allowed to transfer and trade in mutual funds. However, you can redeem your mutual investment.

       - As a QFI you are not allowed to be the ultimate / end beneficial owner of more than one demat account

       - QFIs are not allowed to pledge Shares

  • Limits:

       - Your total shareholding as an individual QFI shall not exceed five percent of a company's paid up equity capital at any time, in respect of each class of equity shares

       - The aggregate shareholding of all QFIs shall not exceed ten percent of a company's paid up equity capital at any time, in respect of each class of equity shares.

  • As a one-time requirement, you (as a QFI) are required:
    • To open a depository account with Kotak Securities Ltd. (Qualified Depository Participant)

    • To open a trading account with a Kotak Securities Ltd. (SEBI Registered Stock Broker)

    • To open a single non-interest bearing Rupee account with Kotak Mahindra Bank Ltd. (an Authorized Dealer Category - I Bank in India) for providing banking services, subject to terms & conditions specified under FEMA (Foreign Exchange Management Act), 1999 from time to time. Kotak Securities Ltd. will manage this single non-interest bearing Rupee account for all investments made by the QFI in India.

    • To acquire a tax registration number (i.e. Permanent Account Number (PAN)) for Income Tax purposes from the Revenue Authorities in India.

    • To Comply with Indian KYC and Anti-Money Laundering legislations:

         - For mutual funds - implementing KYC would be the responsibility of the Mutual Fund receiving the foreign investment.

         - For equity shares - It is the QDP's responsibility i.e. if you are a Kotak Securities Ltd. client, it would be our responsibility to ensure that the applicant complies with the KYC requirements.

         - In both the cases stated above, the details of ultimate beneficial owner(s) should be accessible at all times.

    • To provide a designated bank account outside India through which you would invest into Indian Capital Market. This bank account must be in a FATF compliant country which is also a signatory to the IOSCO convention.

  • Limit monitoring as per ISIN - As per guidelines, the limit needs to be monitored for each share class.

  • You should be careful not to breach the regulations applicable for QFI's -

       - You shouldn't open multiple accounts

       - You should intimate in case of change in beneficial ownership

       - You should not breach any regulation or law in your home country

  • If your residence changes to India, you can no more, as a QFI, qualify as ultimate beneficiary

  • You should comply with laws, rules and regulations specified by Kotak Securities Ltd. pertaining to sourcing of clients in the home country of the QFI.

  • You are liable to and should disclose if you have any penalties, pending litigations and proceedings against you

  • Your inward / outward remittance should be done only from / only to your designated overseas bank

  • Country risk: Investments are subject to the geographical, political, economic and social issues specific to India.

  • Currency risk: Investments are subject to fluctuation in exchange rate as the underlying assets are held in Indian Rupees.

  • Volatility risk: The Indian stock markets are more volatile than the stock markets of the developed economies of Western Europe and North America thus the volatility risk comes into play

  • Tax risk: Tax treatment of foreign investments in India may be varied by the Indian Government without notice.

  • Regulatory risk: You may be restricted from investing in certain sectors or companies, or be subject to investment limits.

  • Liquidity risk: There may be investments in companies where market liquidity is thin.

  • Performance risk: Past investment performance should not be viewed as a guide to, or indicator of, future performance and the value of investments and the income derived from them can go down as well as up.

  • Credit risk: The risk of default by borrowers whose debt is held by the underlying funds. Corporate borrowers present a higher risk of default than governmental borrowers. This risk increases as the period to maturity increases.

  • Interest rate risk: The risk posed by increases in interest rate. This risk increases as the period to maturity increases

  • Capital risk: All or some of the initial capital investment may be lost.

  • As per current regulations, QDP (Kotak Securities Ltd.) shall be responsible for any withholding tax in India before making remittance to QFIs. Only QFIs who have a PAN will be eligible for tax deduction at source (TDS) as per the rates applicable in the Double Taxation Avoidance Treaty (DTAA) of the country of which the QFI is a resident, if it is more beneficial than the rate prescribed under the domestic law. If a QFI does not obtain a PAN card it would be subject to a higher rate of tax deduction.

    Please note:
    1. The above information is subject to change with the change in regulatory / Government norms.
    2. The write-up is for generic understanding of the framework and must not be used in a court of law to interpret any circular, rules, regulations, statutes etc.
    3. Please consult your Tax / Finance Advisor for tax / investment understanding.

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