SEBI Proposes Changes to FPI rules

The HR Khan committee constituted by the Securities and Exchange Board of India (SEBI) has proposed wide-ranging changes to the foreign portfolio investment (FPI) regime. The changes proposed are aimed at boosting capital flows into the country by improving the ease of doing business, especially for large and well-regulated global institutions.

Recommendations of the HR Khan Committee

• To ensure a harmonised and hassle-free investment experience for international investors and improve transparency as economic regulations evolve.
• Allowing FPIs to exceed their 10 per cent investment cap.
• Prohibition relating to foreign investments in certain sectors should be limited to FDI and not be extended to FPIs.
• Permission for FPIs to invest in units of real estate investment trusts, infrastructure investment trusts, and alternative investment funds should be allowed through regulations. Currently, they are allowed to invest only through a circular, which often leads to ambiguity.
• Sovereign wealth funds should be exempted from investment caps in corporate debt.
• While deferring a decision on fully allowing FPI investments in unlisted companies, citing certain risks it recommended allowing FPIs to invest in ‘to-be-listed’ shares.
• Allowing offshore funds floated by Indian mutual funds to invest in India only through the FPI route.
• Pension funds to be considered for Category I FPIs registration.
• Fast-tracking of the on-boarding process which includes simplifying know-your-client (KYC) formalities, for more set of investors such as public retail funds or those intending to invest in central or state government securities.

SEBI has called for public feedback on the various proposals before taking a final call on the recommendations.