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MF would be held as underlying by
the custodian in India in demat mode
against which the UCR issuer would
issue UCR to be held by QFIs. Units
purchased and redeemed through
UCR issuer shall be settled on gross
basis and under no circumstances
shall be netted against other investors
of UCR issuer.
Process Flow When QFIs Come
Through The UCR Route
Step 1:
In case of a mutual fund house
opening a bank account overseas, the
UCR issuer shall forward the order of
QFIs to the MF/ custodian. Upon
receipt and transfer of funds to India,
the mutual fund shall issue units to the
custodian and the custodian in turn
intimate the UCR issuer to issue UCR
to the QFIs.
In case of redemption, the UCR issuer
shall confirm the receipt of
redemption request to the MF and
custodian. On receipt of the
instruction, the MF shall process the
same and transfer the redemption
proceeds to the MF overseas bank
account for making payments to the
designated overseas bank account of
the QFIs.
Step 2:
In case the MF receives money in
India from the UCR issuer, the UCR
issuer shall forward the purchase
order to the mutual fund and
custodian and remit the funds into the
MF scheme account (in rupee terms).
Upon the receipt of funds, the mutual
fund shall issue units to the custodian
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Who Is A Qualified Foreign Investor (QFI)?
QFI means a person resident in a country that is compliant with
Financial Action Task Force (FATF) standards and that is a signatory
to the International Organization of Securities Commission’s
(IOSCO’s) Multilateral Memorandum of Understanding. That
person should also be non-resident of India and currently is not
registered with the SEBI as a Foreign Institutional Investor or a
sub-account.
and the custodian shall, in turn,
confirm to the UCR issuer to issue
UCR to the QFIs.
In case of redemption, the UCR issuer
shall confirm the receipt of
redemption request to the mutual fund
and the custodian.
Upon the receipt of instruction, the
mutual fund house shall process and
remit redemption proceeds to the
UCR issuer, which in turn, shall remit
the redemption proceeds to the
designated bank account of the QFIs.
Investments under both the routes
will be monitored on a daily basis.
The investment under both the routes
will be in units which are directly
issued by domestic mutual funds and
no secondary market purchases would
be allowed.
Further, SEBI, the regulator has also
allowed QFIs to invest an additional
amount of up to $3 billion under both
the routes in domestic mutual fund
debt schemes which invest in
infrastructure debt of minimum
residual maturity of five years within
the existing ceiling of $25 billion for
FII investment in corporate bonds that
have been issued by the infrastructure
companies in the country.
The Secutiries Exchange Board of
India has also said that a mutual fund
can accept subscriptions from QFIs
till investments under both the routes
reach $8 billion in equity mutual fund
schemes and $2.5 billion in debt
mutual fund schemes.
The remaining limit of $2 billion in
equity schemes and $0.5 billion in
debt schemes would be auctioned by
the capital markets regulator through
a bidding process.
The move may act as a further boost
to MFs as it might get more inflows
and will be managing funds for global
investors. Some industry players also
believe that this move might ease the
pressure on the mutual fund industry
which came about after the SEBI
scrapped entry loads in 2009.
However in order to get inflows from
foreign players, Indian fund houses
should be able to convince and
market themselves outside the
country to attract such investorS.
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