SEBI’s New Regulations and Guidelines

SEBI has recently announced wide regulatory amendments, enabling NRIs, OCIs, and RIs to contribute up to 100% to particular FPIs depending on GIFT IFSC, This has been a welcoming move and ensures, a considerable departure from previous restrictions. This development represents a significant departure from the prior regulatory structure prescribed under. The SEBI (Foreign Portfolio Investors) Regulations, 2019.

Following SEBI's board meeting on April 30, 2024, at which a regulatory framework was developed, NRIs, OCIs, and RIs can now invest up to 100% in selected FPIs incorporated in GIFT IFSC and supervised by IFSCA. This action directly responds to SEBI's consultation paper, released in August 2023 to increase participation choices for NRIs and OCI.

SEBI's new regulations are a positive move towards promoting greater investments by NRIs and OCIs in Indian markets through professionally managed FPIs within the IFSC, exempt from previous limitations. This institutional platform is expected to increase inflows of NRI and OCI investments. Furthermore, investing through FPIs in GIFT IFSC may give tax advantages to NRIs and OCIs over direct investments, while also avoiding the need for PAN acquisition or return filing in India.

Requirements for 100% Contribution limits for NRIs/OCIs/RIs in FPIs based on GIFT IFSC:

Submission of Documents:
  1. FPIs must provide copies of PAN cards of all NRI/OCI/RI constituents, as well as their economic interest in the FPI, to the Designated Depository Participant (DDP).
  2. The same disclosure is required for indirect holdings made through non-individual elements that are primarily owned or controlled by NRIs, OCIs, and RIs.
  3. If a PAN card is not available, copies of the identity documents such as an Indian passport, Aadhaar card, etc, should be submitted.
Exemption Conditions:
  1. All investors' contributions are combined into a single, side vehicle-free investment vehicle that is registered as an FPI.
  2. Since there are no segregated portfolios in the fund's corpus, all investors shall have pari-passu and pro-rata rights.
  3. At least 20 investors must contribute a minimum of 25% of the fund’s entire capital.
  4. A maximum of 20% of the fund's assets may be invested in equity shares of an Indian-listed company.
  5. The fund must have an independent investment manager and be managed by an asset management business affiliated with a SEBI-registered mutual fund sponsored by an RBI-regulated bank or its IFSC-based subsidiary/branch.
Disclosure Obligations:

FPIs in GIFT IFSC must adhere to disclosure obligations outlined by the SEBI circular dated 24 August 2023 if any of the following conditions are met:

  1. Over 33% of the FPIs India equities AUM is invested in Indian corporate groups.
  2. In the Indian markets, the FPI, alone or in conjunction with its investor group, has more than INR 25,000 crore in equities AUM.

The framework makes it easier for FPIs to accommodate NRI/OCI investors, however they must follow additional disclosure rules. While the consultation document concentrates on NRIs/OCIs, the press release mentions a larger engagement by RIs. To determine whether there are any prerequisites for RIs to participate more, it is necessary to read the tiny language. Because tax benefits for FPIs in IFSC are only accessible when all investors are non-residents, NRIs' actual involvement in such FPIs may be restricted.

The above note is subject to further study and clarifications. This note does not form an opinion from our end and before taking any decision based on above, it is recommended to consult our experts on the subject.Kamdar, Desai & Patel will not be liable for any damages (including, without limitation, damages for loss of business projects, or loss of profits) arising in contract, tort or otherwise from the use of or inability to use this article, or any of its contents, or from any action taken (or refrained from being taken) as a result of using this article or any such contents.

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