Yes, foreign nationals can invest in Indian mutual funds. They can either invest by direct route, which requires them to open a demat account, or by indirect route through Unit Confirmation Receipts (UCR).
Mutual Funds are the best way to invest in India if you want good returns while taking less risk. A mutual fund may be a company or group of companies that pools money from many investors and invests the money in securities such as stocks, bonds, and short-term debt.
However, many foreign investors also want to invest in Indian mutual funds, but they are unsure about this.
Today we will see whether foreign nationals can invest in Indian mutual funds or not.
Yes, foreign nationals can invest in Indian mutual funds. Previously, only SEBI-registered FIIs and NRIs were permitted to make investments in Indian mutual funds.
But after the financial reform in August 2011, the government changed the rules to permit foreign nationals to make direct investments and purchase units of Indian mutual funds as Qualified Foreign Investors (QFIs).
Also note that, some mutual fund houses are hesitant to accept mutual fund applications from US or Canada due to the compliance procedures. So, do check beforehand, if the respective AMC is accepting new applications from foreigners and NRIs.
Qualified Foreign Investor (QFI) is a person, organization, or group from a nation that is a member of the Financial Action Task Force (FATF) and makes portfolio investments in India.
It also includes a country that belongs to a group that is a member of FATF and resides in a nation that is a signatory to IOSCO’s MMOU or a signatory of a bilateral MOU with the Securities and Exchange Board of India (SEBI).
For direct investment, a QFI needs to open a demat account with a SEBI registered Depository Participant (DP) and, through the DP, they can invest in Mutual Funds. A QFI is only permitted to open one demat account with any qualified DP, and they must subscribe to and redeem through that DP only.
The indirect route will involve four parties: MFs, issuers of Unit Confirmation Receipts (UCR), a custodian registered with Sebi, and QFIs. After receiving Sebi's approval, the MF companies appoint UCR issuing agents overseas, who will act as their agents there.
To open a demat account with a qualified DP. Every QFI will have to undergo the same KYC procedure on an ongoing basis as is applicable to Indian investors in the way that SEBI and RBI have outlined. The qualified DPs are required to carry out the required KYC and guarantee that the necessary requirements are met.
Foreign investors are free to invest in Indian mutual funds as long as they are FATF members. However, a QFI is only allowed to open one demat account with a qualified DP at any given time. Additionally, that demat account should be the only place where all eligible securities are bought and sold.