New category created: the qualified foreign investor

By Mohit Gogia and Brajendu Bhaskar, S&R Associates
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Until recently, only two categories of non-resident investors, namely, (i) foreign institutional investors (FIIs) and their sub-accounts registered with the Securities and Exchange Board of India (SEBI), and (ii) non-resident Indians (NRIs), were permitted to purchase listed securities on the stock exchanges, under the “portfolio investment scheme” of the Reserve Bank of India (RBI), specified in the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000 (FEMA Regulations). Other foreign investors, including individual foreign nationals, were not permitted to purchase listed securities on the stock exchanges. To widen the class of investors and attract additional foreign funds, in January, the Indian government permitted “qualified foreign investors” (QFIs) to directly invest in the Indian capital markets.

Mohit Gogia Lawyer S&R Associates
Mohit Gogia
S&R Associates

QFIs are individuals, companies and other artificial juridical persons that are resident in a foreign country which is compliant with the Financial Action Task Force (FATF) standards (for countries not compliant with FATF standards, see www. and a signatory to the multilateral memorandum of understanding (MMoU) of the International Organization of Securities Commissions (IOSCO) (see, and whose ultimate beneficial owner is not resident in India. SEBI-registered FIIs and their sub-accounts and foreign venture capital investors are excluded from the definition of QFIs.

QFIs are permitted to invest only in equity shares (and not in any other type of security, such as preference shares, debentures or warrants) of Indian companies in public or rights offerings or on a recognized stock exchange in India through SEBI-registered stockbrokers or pursuant to bonus issues, stock split or consolidation, or amalgamation, demerger or other corporate actions; sell equity shares through SEBI-registered stockbrokers or in an open offer under the SEBI takeover regulations or the SEBI delisting regulations or through buyback under the SEBI buyback regulations; and receive dividends.

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Mohit Gogia and Brajendu Bhaskar are lawyers at S&R Associates, a law firm with offices in New Delhi and Mumbai. The above information is a general legal update and not a substitute for legal advice.


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