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NRIs in Gulf countries can invest through new route

New Delhi, May 29, (): The Securities and Exchange Board of India (Sebi) is planning to make changes in the Qualified Foreign Investor (QFI) route that will enable non-resident Indians (NRIs) in Gulf countries to make investments. Six months after this route was opened there has not been a single investor.

Reasons for this is said to be the sluggish market and no awareness of this new route. According to the QFI rules laid by the finance ministry in January, only investors from Financial Action Task Force (FATF) countries were allowed to invest through QFI. The Financial Action Task Force (FATF) is an inter-governmental body formed to combat money-laundering, financing terrorist activity and other such threats to the nations.

Though the six nations’ apex body GCC itself is a member of FATF, the six member countries of GCC UAE, Bahrain, Oman, Saudi Arabia, Qatar and Kuwait are individually not. This has stopped NRI’s in these countries from using the QFI. The SEBI has decided to remove this barrier by permitting investments from the Gulf countries which has a huge Indian diaspora. Existing NRIs who invest through the QFI will have to close their existing positions first. But no NRI will want to close their account in a falling market and sell their shares at a loss. The only way out is to allow them to transfer their shares to QFI or allow them to hold them till the time they liquidate. The clarifications on such issues will significantly develop the scope of the QFI network, the newest channel opened to foreign investors. The new channel announced by the finance ministry on January 1, 2012, allows foreigners to invest directly in Indian equities.

Qualified depository participants (QDPs) have told SEBI that they cannot take responsibility for the NRI tax liability. Yet another irritant is the rule governing Know Your Customer (KYC) norms for QFIs. The intermediaries had raised issues about the rule which calls for in-person verification in the KYC.