Portfolio investments capped at 10% for single investor   

Stock market regulator SEBI has merged FIIs, Sub-Accounts and Qualified Foreign Investors (QFIs) into a single and new investor class called “Foreign Portfolio Investors” (FPIs).

Accepting the K.M. Chandrasekhar committee recommendations on rationalising investment routes and monitoring foreign portfolio investments, SEBI has decided to do away with prior direct registration of FIIs and Sub-Accounts.

This would be done by designated depository participants (DDP) authorised by the regulator and would be subject to know your client (KYC) compliance. FPI have been divided into three categories. Category I would include Government and Government-related entities such as Foreign Central Banks, Sovereign Wealth Funds, Multilateral Organisations and the like.

Risk-based KYC

Category II would have regulated entities such as banks, asset management companies, broad-based funds such as mutual funds, investment trusts, insurance and reinsurance companies, university funds, pension funds and university-related endowments already registered with SEBI.

Category III would consist of those not falling under the above two. KYC would be risk-based said SEBI. The documents needed for registration and on-boarding would be the simplest for Category I and most stringent for Category III.

The requirement of submitting proof of personal identification such as copy of passport, photograph of the designated officials of FPIs belonging to Category I and Category II has been done away with.

‘Big positive’

Portfolio investments by any single investor or investor group has been capped at 10 per cent of the equity of an Indian company. Investment beyond 10 per cent shall be considered as Foreign Direct Investment.

Suresh Swamy, Executive Director, PwC India, said: “Merging the FII, sub-accounts and QFIs into a new investor class ‘FPI’ will surely simplify foreign investors entry into the Indian capital market and is a big positive.

Delegation of registration of FPIs to Designated Depository Participants will also quicken the pace of their entry.

“Doing away with the requirement to submit personal identification documents such as passport and photograph is a welcome relief.

“Foreigners have been hesitant to share these documents as it has lot of information which they consider personal.”

raghavendrarao.k@thehindu.co.in

(This article was published on June 25, 2013)
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