Over the span of time, India has become a favoured destination for investment attributable to 'Ease of doing business' policies of the Government. Efforts have been made to promote investment in India with a view to accelerate the development of the economy of the country. Investor-friendly policies are encouraging foreign investment in the nation resulting in the overall growth of the nation.
Foreign Portfolio Investment
Foreign Portfolio Investment (hereinafter referred to as "FPI") are the investments which are highly liquid and indicate the indirect control of the investor in the management. The FPI are made by a person resident outside India through capital instruments. It involves buying and selling of shares, convertible debentures of Indian companies, and units of domestic mutual funds at any of the Indian stock exchanges.
FPI laws in India
In India, FPI are governed under the provisions of the Securities and Exchange Board of India Act, 1992 as well as the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2014(hereinafter referred to as the "Regulations"). The authority monitoring the guidelines for FPI regulation is the Securities and Exchange Board of India (hereinafter referred to as "SEBI").
Eligibility criteria revised
SEBI has amended the provisions pf eligibility norms with respect FPI vide September 21, 20181. Some of the features of the said scheme are stated below:
- Non-Resident Indians (hereinafter referred to as "NRIs"), Overseas Citizens of India (hereinafter referred to as "OCIs") and Resident Indians (hereinafter referred to as "RIs") shall be allowed to be constituents of FPIs.
- FPIs can be controlled by investment managers (IMs) which are controlled and / or owned by NRI/ OCI/ RI.
- Contributions by NRI/ OCI/ RI including those of NRI/ OCI/ RI controlled Investment Manager should be below 25% from a single NRI/ OCI/ RI and in aggregate should be below 50% to corpus of FPI.
- A non-investing FPI may be directly or indirectly fully owned and/ or controlled by a NRI/ OCI/ RI.
- The restriction that NRI/ OCI/ RI should not be in control of FPI shall also not apply to FPIs which are 'offshore funds' for which no-objection certificate has been provided.
Know Your Client
Know Your Client (hereinafter referred to as "KYC") review means steps taken to ensure that documents, data or information collected under the due-diligence process. In order to prevent the conduct of illegal transactions through foreign investments route, SEBI has revised the KYC guidelines enumerated by it via its circular dated September 21, 20182. Some of the features of the same are provided below:
- Periodic KYC review to kept up-to-date records and relevant by undertaking reviews of existing records on a timely basis.
- SEBI has prescribed "Financial Data" as mandatory for Category III FPIs stated in the Regulations3.
- The KYC Registration Agencies shall lock personal information provided with regard to beneficial owner to ascertain data security. Such information should be made available to intermediaries only on 'need to know basis' using an authentication method.
- The Custodian should maintain the KYC records in original for a minimum period of 5 years from the date of cessation of the transactions with the said FPI or in case of litigation till the termination of such proceedings.
- The concerned Custodian shall not allow FPI to make fresh purchases till the time KYC documentary requirements, as applicable, are complied with.
The newly introduced provisions of SEBI have brought forward new policies in terms of FPI to monitor and regulate effective management of this foreign investment.
Footnotes
3 https://www.sebi.gov.in/sebi_data/attachdocs/1389083605384.pdf
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