The markets regulator had said that NRIs or PIOs are not eligible to make investments as an FPI
A recent circular by the Securities and Exchange Board of India (SEBI) said that foreign portfolio investors (FPIs) cannot have Non-Resident Indians (NRIs) or Persons of Indian Origin (PIO) as the end beneficiary. However, experts said clarifications will be required on whether the initial seed capital put in will also count in this.
A SEBI circular released on Tuesday had said that an NRI/PIO is not eligible to make investments as an FPI. Accordingly, it added that a company which is majority-owned by one or more NRI/PIOs shall not be allowed to make investments as an FPI.
“Existing FPI structures not in conformity with the above requirements henceforth should not create fresh positions at the end of the expiry of derivative contract of April 2018,” said SEBI. It has also given FPIs a time period of six months to either change their structure or close their investments in the Indian securities market.
A Business Standard report said close to 150 foreign funds currently registered with SEBI are promoted by PIOs. It added that they now face revocation of licences.
The markets regulator explained that the definition of a beneficial owner in an FPI will be 15 per cent in case of partnership form, trust and 25 per cent in case of companies.
“This will mean that the existing holdings will have to be immediately changed. On one hand, while companies may take more than six months to alter the entire structure, we are still not clear on the seed capital area,” said the head of securities market at a large accounting firm.
Typically for an FPI, fund managers make seed investments as an initial capital before external investment is sought. The circular has not mentioned if these investments would add upto the 15 per cent holding limit or will be kept outside purview.
“Before these entities start trading actively, small investments are made by fund managers as an initial push. Technically, these shouldn’t be part of the ownership,” added another investment firm with a large Mumbai-based legal firm.