What is a Qualified Domestic Institutional Investor (QDII)?
A qualified domestic institutional investor (QDII) is an institution allowed to invest in foreign securities.
How Does a Qualified Domestic Institutional Investor (QDII) Work?
China runs one of the most well known QDII programs. There, the China Securities Regulatory Commission allows qualified banks, mutual funds and other investment companies to invest in foreign securities. In general, to qualify the QDII must have stable finances, sound governance and internal controls, experienced management, and no recent securities violations. Net asset requirements also exist.
QDIIs are generally allowed to invest in equities, debt securities, bonds, bank deposits and derivatives, but they are not allowed to invest in property or precious metals, or to underwrite securities. In many cases, the QDII appoints an overseas investment consultant that assists the QDII with investing in a foreign market.
Why Does a Qualified Domestic Institutional Investor (QDII) Matter?
QDIIs exist mainly in countries that have pegged currencies and/or where capital is not able to flow freely in and out of the country (though the countries may have other reasons for controlling ownership positions, such as inflation concerns). QDIIs provide limited opportunities for local investors to access foreign markets.