Currently, QFIs are allowed to invest in equity and debt instruments of mutual funds, as was announced in the Budget 2011-12. The government allowed foreign investors to directly invest up to $13 billion in equity and debt schemes of mutual funds.

According to an official statement, the QFIs will include individuals, groups or associations, resident in a foreign country, which is compliant with Financial Action Task Force (FATF) and is signatory to International Organisation of Securities Commission.

As per present regulations, only Foreign Institutional Investors (FIIs) or sub-accounts and non-resident Indians are allowed to directly invest in the equity market.

The move becomes significant given the foreign capital outflows from the domestic equity market recently, thereby resulting in rupee volatility.

The move is going to benefit retail investors wanting to invest in the Indian equity market but do not have direct access to the equity market. “In the absence of availability of direct route, many QFIs find difficulties in investing in Indian equity market,” the statement said.

“This is definitely a positive move but the impact will be visible only after the revival of the market. Considering the current market situation, we are not very sure how this is going to work out. As such, blue chips companies already have the option of ADRs and GDRs. QFIs can invest in ADRs. So the positive impact will be seen on medium and small enterprises who don’t have the facility of ADRs or GDRs,” Jagannadham Thunuguntla, strategist and head of research at SMC Global Securities, said.

Sebi and RBI are expected to issue relevant circulars to operationalise the scheme by January 15, 2012.

The central bank will grant general permission to QFIs for investment under Portfolio Investment Scheme (PIS) route similar to FIIs and the individual and aggregate investment limit for QFIs will be 5 per cent and 10 per cent, respectively, of the paid up capital of Indian company.

These limits shall be over and above the FII and NRI investment ceilings prescribed under the PIS route for foreign investment in India, the statement added.