Common practices to use FPI structures for India exposure, say experts

Custodians say investment in Adani-linked offshore fund could be a case of bad luck

Madhabi Puri Buch, chairperson of Sebi, is in the eye of the storm after Hindenburg Research revealed that she and her husband had invested in the same offshore fund linked to the Adani group controversy.

However, custodians and industry experts say it is common practice among overseas Indians to seek domestic exposure through such investment vehicles.

Puri Buch and her husband opened their accounts in the fund in 2015 when they were non-resident Indians (NRIs) based in Singapore. Her husband, Dhaval, is said to be a Singapore citizen.

“When they moved to Singapore, they might have been approached by a wealth manager to invest in this India-dedicated fund. Among the 3-4 options available, they might have simply opted for the IIFL Global Dynamic Opportunities Fund (GDOF). It is a case of bad timing or luck that the same fund is now under scrutiny for its investment in Adani group stocks,” said a custodian.

Custodians and designated depository participants (DDPs) facilitate foreign portfolio investor (FPI) transactions, including settlements, record-keeping, and account management.

Hindenburg has questioned Puri Buch's decision to use an FPI structure instead of a “reputable” onshore mutual fund.

FPIs are also considered to be better regulated and more trustworthy, said industry players. NRIs can also invest in domestic mutual funds under Foreign Exchange Management Act (FEMA) compliance.

Custodians said that investing in an offshore fund is being portrayed as having a “stake” in the fund to create headlines.

“In reality, the managing shareholder or the general partner owns the structure. They pool investments and draw management fees, while participating shareholders or limited partnerships are mere investors without management or voting rights,” explained an official at a DDP.

He said Hindenburg's claim that the Sebi chairperson and her husband had “stakes in both obscure offshore funds used in the Adani money siphoning scandal” is a reckless statement.

According to whistleblower documents revealed by Hindenburg, Puri Buch and her husband Dhaval first opened their account with GDOF’s Mauritius-registered segregated fund on June 5, 2015.

A declaration at the time of the investment showed their source of funds as “salary,” and the couple's net worth was stated as $10 million.

In 2017, Dhaval sent a request to be “the sole person authorised to operate the account.”

Later, on February 25, 2018, she personally wrote to IIFL to redeem the units in the fund. At that time, the value of their investment was $872,762.