To increase fund flow in the bond market, market regulator Sebi today issued guidelines allowing overseas individual investors to invest up to $1 billion in corporate bonds and debt schemes of mutual funds without any lock-in period.
"In consultation with the Government of India (GoI) and RBI, it has now been decided to allow Qualified Foreign Investors (QFIs) to invest in Indian corporate debt securities and debt schemes of Indian mutual funds," Sebi said in a circular.
QFIs or overseas individual investors are permitted to invest in corporate debt securities without any lock-in or residual maturity clause and mutual fund debt schemes subject to a total overall ceiling of $1 billion, it said.
This limit shall be over and above the limit of $20 billion for FII investment in corporate debt, it added.
As per the existing norms, QFIs are allowed to invest in schemes of Indian mutual funds and Indian equity shares by opening a demat account with a qualified Depository Participant (DP).
The circular also said that QFI can invest without obtaining prior approval until the aggregate QFI investments reaches 90% of $1 billion (i.e. $900 million).
For fresh purchases by QFIs after this cap, Sebi said, prior approval of the depositories is required to be obtained.
The QFI should make such request for prior approval to the concerned depository through the DP specifying therein the name of the QFI, PAN and other unique identification number relating to that QFI, by way of any mode of communication as specified by the depositories in consultation with each other, it said.
The concerned depository shall provide the details of prior approval requests received by it to the other depository, it added.
With regard to meeting Know Your Customer (KYC) requirements, it said, DPs will ensure KYC of the QFIs as per the norms prescribed by Sebi.
In addition to the reporting to RBI as may be prescribed by them, Sebi said, DPs will also ensure reporting to SEBI in a prescribed format.
Between January-May 2012, FIIs have put in $11.89 billion into Indian markets.
Recently, the government also expanded the ambit of QFIs to include residents of Financial Action Task Force (FATF) member countries and those from countries which are signatories to International Organisation on Securities Commission protocol.