Investment

Sebi proposes relaxed entry norms for FPIs

The authority

The latest legal news is a cause for celebration for foreign investors with the Securities and Exchange Board of India proposing easy entry rules for the Foreign Portfolio investors who are willing to make an investment in India. Now, they can invest directly in the Indian share markets rather than through participatory notes. Participatory notes are issued by registered FPIs to global investors who wish to invest in Indian stock markets without registering themselves in Sebi.

Sebi board had given a green signal to the proposals to have discussion on relaxing the FPIs norms in its last meeting on 21st June. Some rules that have been relaxed are widening of the jurisdictions that are eligible for registration by including the countries who have diplomatic tie-ups with India and are FEMA compliant. Now, one can expect more number of eligible jurisdictions to have an access in the Indian share market as a result of the change in FPI Regulations.

Along with that, SEBI has also made recommendations regarding the “fit and proper” criteria for FPIs to make it more rational.

SEBI has invited the views of all the stakeholders and public on this matter and the same can be submitted till 27th July.As per the legal news, the rule that has been proposed by SEBI states that Category I and II FPIs, which are typically government and regulated entities foreign central banks, or multilateral agencies, will not require any more documentation and procedures. Sebi has also clarified that in the case of multilateral agencies there is no need to go through the jurisdiction check because they are anyway best quality and low-risk investors with an intention of having a long-term investment. But in the case of Category III FPIs, who are mostly hedge funds, the current requirements will remain unchanged.

The regulator has proposed to simplify broad based criteria, which is a fund that is established outside India needing to have at least 20 investors but no investor holding of more than 49% shares. This is proposed to be extended in the cases when the applicant funds have other institutional investors. Sebi has got a response from people that since some of the applicants who want registration are open ended funds which are always open for subscription and redemption. Sometimes because of heavy redemptions by investors the number of investors goes down 20 and thus the fund does not hold the broad-based criteria. Currently, the regulator has made it clear that if broad based fund loses its status as a result of exit of global investors then it does not mean the loss of Category II status. In such case, a time of 3 months will be given to regain their status.

SEBI has also proposed to cease the process of a prior approval in case of change in local custodian or designated depository participants (DDPs).  As per stock market experts, SEBI has also proposed that private banks or merchant banks can invest on the behalf of their clients by sharing details of beneficial owners as and when required by the regulator.

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Vikas Agarwal
the authorVikas Agarwal
Vikas Agarwal is an IIT-Varanasi graduate in Chemical Engineering. He is the Founder and CEO of Finaacle.com - an investment advisory website. He is a Business Development Professional but a Value Investor at heart. He writes articles on Finaacle, which focus on simplifying the art of investing and the causes of human misjudgment when it comes to investing. He also shares his experiences as an investor and lessons from some of the greatest investors of all time.

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