Sebi brings in rules for merger of FPI, NRI fund inflows in single regime

The regulator has also exempted housing finance companies and systemically important NBFCs from disclosure of increase or decrease in shareholding

Markets regulator Sebi has come out with rules for merger of foreign portfolio investment (FPI) and non-resident Indian/overseas citizens of India routes to bring in a single regime for foreign investors and regulate NRI and person of Indian origin fund inflows.

The regulator has also exempted housing finance companies and systemically important NBFCs (non-banking financial companies) from disclosure of increase or decrease in shareholding due to encumbrance or release of encumbered shares, Sebi said in a notification.

A similar exemption is already available to scheduled commercial banks and public financial institutions.

In another notification dated December 31, Sebi said if single and aggregate NRI/OCI/RI holdings in assets under management of FPI are below 25 per cent and 50 per cent, respectively, then such persons will be allowed to be constituents of the FPI.

In case of temporary breach of investment limits, FPI will need to comply within 90 days and in case it remains non-compliant even after 90 days, no fresh purchases will be permitted and such FPI will have to liquidate its existing position in Indian securities market within 180 days.

The final regulation has been put in place after taking into account suggestions of a Sebi working group headed by H R Khan, former deputy governor at RBI.

Further, the regulator has relaxed its norms for clubbing of investment limits by well regulated foreign investors.

Currently, foreign portfolio investors (FPIs) are treated as part of the same investor group and the investment limits of all such entities are clubbed for deriving the investment limit as applicable to a single FPI, in case of the same set of ultimate beneficial owners investing through multiple entities.

Under the new norm, multiple entities having common ownership, directly or indirectly, of more than 50 per cent will be treated as part of the same investor group and their investment limits would be clubbed, as per the notification.

"Multiple entities having common ownership, directly or indirectly, of more than 50 per cent or common control shall be treated as being part of the same investor group and the investment limits of all such entities shall be clubbed at the investment limit as applicable to a single FPI," it added.

Besides, the clubbing of investment limit would not be applicable in case of entities having common control, if the FPIs are appropriately regulated public retail funds.

Public retail funds typically include insurance companies, pension funds and mutual funds or unit trusts that are open for retail subscriptions.

"In order to appropriately monitor investment concentration where common ownership or control is identified for such public retail funds, the Indian depositories shall maintain details of controlling entities on the basis of name, address, nationality, passport number/ any other identification card issued by government and provide appropriate reports to the board on a periodic basis," Sebi noted.