SEBI has relaxed FPI rules but will affect certain foreign investors

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Mumbai, Ta. 08 October 2019, Tuesday

Market regulator Sebi has relaxed the rules for Foreign Portfolio Investors (FPIs) in order to keep foreign investment flowing in the Indian stock market. After the finance minister imposed tariffs on FPI in the budget, foreign investors withdraw large amounts of funds from Indian equities shortly after withdrawing funds. Announce the removal of the burden on investors After that, Sebi has also relaxed some rules.

SEBI has simplified the regulatory framework for foreign portfolio investors. In addition, it has simplified the requirement for KYC and allowed them to transfer the securities off-market.

Sebi has also created a framework for start-ups to shift on the mainstream stock exchange after one year. Sebi has created a new framework to help start-ups shift from the stock market's Innovators Growth platform to the Main Board. This will allow them to shift after one year of regular trading.

The regulator has expanded the classification of Foreign Portfolio Investors (FPIs) and simplified its registration process.

According to the new framework, FPIs will be classified into two categories instead of three. Currently, FPI is divided into three categories. Where Compliance Rules are simple for FPI of Category-I and there are more stringent rules for Category-I.

Some foreign funds are likely to be hit hard by the new rule announced by SEBI a fortnight ago. Those who are not involved in the 4-member club of the Financial Action Task Force (FATF).

Mauritius, Cayman and Cyprus are not members of this task force. According to Sebi's notification, only the FPI or an entity located in this area will be allowed to deal in the Portisipatory Note. PNA is an offshore derivative instrument with Indian shares, futures and options as an underlying.

This rule will have the maximum impact on public equity funds and hedge funds. Funds based in Mauritius and Cayman Islands are likely to be included in the FPI of Category-I. While Category-2 FPIs are now exempted from accessing P-Notes, guidance will be awaited on how KYC rules will apply.

Under the SEVI Regulation, Category I funds include the Sovereign Wealth Fund, the Pension and Endowment Fund and the Financial Action Task Force Member Fund. Non FATF funds are classified in category-1.

Therefore, Mauritius and Cayman's Funds may not subscribe or issue PNFs unless managed by a Member Entity. The Mauritius and Cayman Islands fund accounts for about 3-5% of the portfolio in Deshi Portfolio Investment.

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