Foreign Portfolio Investors

Additional disclosures by foreign portfolio investors

SEBI, vide notification dated March 20, 2024, amended the criteria listed under para 8 of the circular dated August 24, 2023⁷ (“FPI Circular”) wherein it is decided that foreign portfolio investors (“FPIs”) having more than 50% of its Indian equity Asset Under Management (“AUM”) in a corporate group will not be required to make the additional disclosures as specified in the FPI Circular, subject to compliance with all of the following conditions:

1. the apex company of such corporate group has no identified promoter;
2. the FPI holds not more than 50% of its Indian equity AUM in the corporate group, after disregarding its holding in the apex company (with no identified promoter); and
3. the composite holdings of all such FPIs (that meet the 50% concentration criteria excluding FPIs which are either exempted or have disclosed) in the apex company is less than 3% of the total equity share capital of the apex company

Custodians and depositories must track the utilisation of this 3% limit for apex companies, without an identified promoter, at the end of each day. When the 3% limit is met or breached, depositories must make this information public before the start of trading on the next day. Thereafter, for any prospective investment in the apex company by FPIs, that meet the 50% concentration criteria in the corporate group, the FPIs will be required to either realign their investments below the 50% threshold within 10 (ten) trading days or make additional disclosures prescribed in the FPI Circular.

Limits for investment in debt and sale of credit default swaps by FPIs

The RBI, vide their circular dated April 26, 2024, sets out the investment limits for the financial year 2024- 25, which are as follows:

1. the limits for FPI investment in Government Securities (“G-Secs”), State G-Secs (“SGSs”) and corporate bonds will remain unchanged at 6%, 2%, and 15%, respectively, of the outstanding stocks of securities for 2024-25;
2. all investments by eligible investors in the ‘specified securities' must be reckoned under the fully accessible route;
3. the allocation of incremental changes in the G-Secs limit (in absolute terms) over the 2 (two) subcategories – ‘General' and ‘Long-term' – is retained at 50:50 for 2024-25;
4. the entire increase in limits for SGSs (in absolute terms) is added to the ‘General' sub-category of SGSs; and
5. the aggregate limit of the notional amount of credit default swaps sold by FPIs is 5% of the outstanding stock of corporate bonds. Accordingly, an additional limit of INR 2,54,500 crore (Indian Rupees two lakh fifty-four thousand and five hundred crore) is set out for 2024-25.

Flexibility in payment of registration fee, dealing with securities after expiry of registration and revised timelines for disclosure of material changes

SEBI, vide notification dated May 31, 2024, has issued the SEBI (FPI) (Amendment) Regulations, 2024 (“FPI Amendment Regulations”) amending the SEBI (FPIs) Regulations, 2019. The amendments provide flexibility to FPIs in dealing with securities after expiry of registration, payment of registration fee and relax the timelines for disclosure of material changes/events. These amendments are incorporated in the Master Circular for FPI, Designated Depository Participants (“DDPs”) and Eligible Foreign Investors dated May 30, 2024 (“FPI Master Circular”), vide circular dated June 5, 2024. The key amendments are as follows:

1. Payment of registration fee: An FPI must pay the prescribed registration fees, for every block of 3 (three) years, before the beginning of such block. However, if the FPI pays the registration fees along with the late fee within a period of 30 (thirty) days from the date of expiry of the preceding block, it will be deemed to have paid the registration fee in a complaint manner.
2. Dealing in securities post expiry of registration:
   1. an FPI whose certificate of registration is not valid as on the date of commencement of the FPI Amendment Regulations and is holding securities or derivatives in India, is allowed to sell such securities or wind up their open position in derivatives in India within 360 (three hundred and sixty) days from June 3, 2024;
   2. if an FPI has not paid the registration fees and the late fees, if applicable, and continues to hold securities or derivatives in India, then it can sell the securities or wind up their open position in derivatives in India within 360 (three hundred and sixty) days from the date of expiry of 30 (thirty) days (referred in para 1 above); and
   3. an FPI whose certificate of registration is not valid and who has not sold off the securities or wound up their open position in derivatives in India within the prescribed timelines will be deemed to have written off the securities.
3. Timelines for disclosure of material changes/events:
   
   The procedure for disclosing certain material changes/events is modified. Earlier, an FPI had to, within 7 (seven) working days, inform SEBI and/or the DDP in case:
   
   
   1. any previously submitted information was found to be false or misleading in any material respect;
   2. of a material change in the information previously furnished by them, including any direct or indirect change in its structure or ownership or control or investor group; or
   3. of any penalty, pending litigation or proceedings, findings of inspections or investigations for which action may have been taken or is in the process of being taken by an overseas regulator against it.
      
      
4. Pursuant to the FPI Amendment Regulations, in the event of the occurrence of the material changes/events mentioned above, the FPI must inform SEBI/the DDP in writing, in the following manner:
   
   
   1. ‘Type I' material changes, which include critical material changes that render the FPI ineligible for registration, require FPI to seek fresh registration, render FPI ineligible to make fresh purchase of securities or impact any privileges or exemptions granted to the FPI, must be notified within 7 (seven) working-days of the occurrence of the change and the supporting documents must be provided within 30 (thirty) days of such change; and
   2. ‘Type II' material changes, which include any material changes other than those considered as ‘Type I' material changes, must be notified and supporting documents must be provided within 30 (thirty) days of such change.

Changes to the eligibility criteria of FPI

SEBI, vide notification dated June 26, 2024, has issued the SEBI (FPI) (Second Amendment) Regulations, 2024 (“FPI Second Amendment”) amending the SEBI (FPI) Regulations, 2019. The amendment provides flexibility to Non-Resident Indians (“NRIs”), Overseas Citizens of India (“OCIs”) and Resident Indian Individuals (“RIIs”) in the amount of their contribution in the corpus of an FPI. These amendments are incorporated in the FPI Master Circular, vide circular dated June 27, 2024. NRIs or OCIs or RIIs may be constituents of the applicant subject to the following conditions:

1. the contribution of a single NRI or OCI or RII must be below 25% of the total contribution in the corpus of the applicant;
2. the aggregate contribution of NRIs, OCIs and RIIs in the corpus of the applicant must be below 50% of the total contribution in the corpus of the applicant. However, this does not apply to an applicant regulated by the IFSCA and based in IFSCs in India. Accordingly, NRI, OCIs and RIIs can have up to 100% aggregate contribution in the corpus of an FPI based in IFSCs in India regulated by IFSCA subject to the conditions stipulated in the FPI Master Circular;
3. the contribution of RIIs must be made through the Liberalised Remittance Scheme notified by the RBI and must be in global funds whose Indian exposure is less than 50%; and
4. the NRIs, OCIs and RIIs must not be in control of the applicant.

Footnote

1. SEBI/HO/AFD/AFD – PoD – 2/CIR/P/2023/14

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