FPIs based in IFSCs can soon have 100% contribution from NRI, OCI or resident Indians

The FPIs will also be bound by the additional disclosures mandated by the August 24, 2023, circular, if they meet the concentration of holding criterion or exposure to Indian markets criterion.

Foreign portfolio investors (FPIs) based out of the International Financial Service Centres (IFSCs) in India will soon be able to have 100 percent contribution from any one of the three categories of investors--non-resident Indians (NRIs), overseas citizens of India (OCI) and resident Indians (RIs).

The market regulator's Board met on April 30 and approved a regulatory framework to provide more flexibility for increased contribution by NRIs, OCIs and RI Individuals in these FPIs.

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The FPIs will need to submit the PAN cards of each investor, along with details of the economic interest the investor holds in the FPI, to the designated depository participant (DDP).

FPIs set up in IFSC and regulated by the IFSC Authority can have 100 percent contribution from NRI, OCI or RI category without submitting these documents, provided they meet certain conditions.

The conditions are as follows:

1.Pooling: Contribution of all investors of the fund are pooled into one investment vehicle that is registered as an FPI, with no side vehicles.

2. Pari-passu and Pro-rata: The corpus of the fund is a blind pool (i.e. common portfolio) with no segregated portfolios. All investors in the fund shall have pari-passu and pro-rata rights in the fund.

3. Diversification of investors: The fund has a minimum of 20 investors with each investor contributing not more than 25 percent to the corpus of the fund.

4. Diversification of investments: A maximum of 20 percent of the corpus of the fund may be invested in the equity shares of an Indian listed entity.

5. Independent Investment Manager: The investors in the fund do not have a say in the investment decisions of the fund. The Investment Manager (IM) is completely independent with respect to taking investment decisions for the fund.

6. The IM of the fund is an Asset Management Company of a SEBI registered Mutual Fund which is sponsored by a RBI regulated Bank or its IFSC based subsidiary/branch.

The FPIs will also be bound by the additional disclosures mandated by the August 24, 2023, circular, if they meet the concentration of holding criterion or exposure to Indian markets criterion.

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That is, the additional disclosures with respect to all entities holding any ownership, economic interest, or exercising control in the FPI on a look through basis will need to be made if the FPI qualifies under the following:

1. The FPI holds more than 33 percent of their Indian equity AUM in a single Indian corporate group; or such FPI along with its investor group holds more than INR 25,000 crore of equity AUM in the Indian markets.

2. The FPI, along with its investor group holds more than Rs 25,000 crore of equity AUM in the Indian markets.

On NRI participation

These relaxations will improve NRI participation in the Gujarat International Finance Tec-City (GIFT City), according to Siddharth Shah, partner at Khaitan &  Co.

Shah said, "The proposal to relax the NRI participation limits in GIFT based FPIs is a very positive move on part of Sebi after much deliberations and should bring some cheer to the fund managers in India and overseas."

"Allowing GIFT based FPIs to take upto 100 percent NRI investor may prove to be a big draw for many fund managers, both domestic and overseas, to set up their fund operations in GIFT," he added.