The Securities and Exchange Board of India (SEBI) has announced the revised guidelines for know your client (KYC) requirement for foreign portfolio investors (FPIs) allowing non-resident Indians (NRIs), resident Indians (RIs) and overseas citizens of India (OCIs) to be part of such FPIs investing in India.
Such NRIs, OCIs and RIs can be part of a FPI if their aggregate holding in such an overseas fund is less than 50% of the corpus of the fund. Further, the individual share of such entities cannot exceed 25% in an FPI.
“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,” SEBI said in a circular issued on Friday.
More importantly, the regulator has also laid down that FPIs can be controlled by investment managers that are owned or controlled by NRIs, OCIs or RIs. Such, investment managers, however, need to be properly regulated in their home jurisdiction and also registered with the SEBI.
Time to fulfill norms
Existing FPIs will be given two years’ time — from the date the new regulations come into force — to fulfill the new eligibility criteria. Also, in case of a temporary breach of the norms, the entity will get 90 days to comply with the regulations.
Meanwhile, FPIs will be subject to periodic review and any change in material information or disclosure would warrant such a review. For category II and III FPIs from high risk jurisdictions, KYC review would be done annually, said SEBI.
The new guidelines as laid down by SEBI are largely in line with the recommendations of the H. R. Khan Committee that reviewed the earlier circular issued in April after many overseas investors expressed their discomfort with the conditions stated in the circular.
According to a section of foreign investors, the earlier requirements were such that they effectively barred NRIs, OCIs and RIs from managing foreign funds. While an industry body had pegged the potential outflows at $75 billion due to the earlier diktat of SEBI, the regulator had brushed aside those concerns.
