SEBI Propose FPI Reforms to Boost Investment and Ease Compliance

Context:

The Securities and Exchange Board of India (SEBI) has issued two major proposals to enhance investment flows and simplify compliance in the Indian securities market. These aim to widen resident Indians’ participation in international investment schemes and streamline market entry for trusted foreign investors.

Key Highlights:

Expanding Resident Indian Participation in FPIs

• SEBI proposes allowing retail schemes based in International Financial Services Centres (IFSCs), sponsored or managed by resident Indian non-individuals or mutual funds, to register as Foreign Portfolio Investors (FPIs).
• Terminology Update:
  • Replace “sponsor or manager” with Fund Management Entity (FME) or its associate.
  • A Fund Management Entity (FME) is a legal entity registered with the International Financial Services Centres Authority (IFSCA) to carry out fund management activities in an IFSC, such as GIFT City in India.
• Investment Limit:
  • Resident Indian non-individual FMEs or their associates can contribute up to 10% of a retail scheme’s corpus.
• Constituent Expansion:
  • Overseas mutual funds/unit trusts registered as FPIs can include Indian mutual funds as constituents.

Single-Window Framework for Low-Risk Foreign Investors (SWAGAT-FI)

• The SWAGAT-FI framework will offer a single-window, unified registration process for eligible foreign investors, enabling them to invest through multiple routes without having to undergo separate compliance procedures for each.
• Introduction of SWAGAT-FI:
  • Single Window Automatic & Generalised Access for Trusted Foreign Investors.
• Target Investors:
  • Sovereign wealth funds, pension funds, central banks, multilateral agencies, highly regulated public retail funds, regulated insurance companies.
• Proposed Changes:
  1. Single Registration: Automatic FPI + FVCI status without extra documentation.
  2. Longer Validity: KYC and registration review extended from 3–5 years to 10 years.
  3. Single Demat Account: Option to hold all securities in one account with regulatory tagging.
  4. Cap Removal: No 50% contribution cap for NRIs/OCIs/RIs in SWAGAT-FI entities.
• Impact: Faster market entry, reduced costs, and improved investment flexibility for large institutional investors.

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