NRI investments in domestic market

After NRI investments in the domestic market, foreign funds on SEBI

The regulator requests guard to provide data to end beneficiaries of foreign funds with Indian ownership
Two weeks after the market regulator tightened rules on non-resident Indian investments in the domestic market, several foreign funds were under scrutiny by the Securities and Exchange Board of India (Sebi).

NRI investments in the domestic market

According to the sources, the Regulatory Authority has sought to obtain investment information and information regarding the final beneficiaries of foreign portfolio investors (FPIs) of custodians.  The FPI regulations of Sebi prohibit any foreign fund from being controlled by PIO or NRI. These entities are allowed to obtain an FPI license provided they only act as investment advisors and do not invest their money.

However, the global funds usually require fund managers to put some initial capital, the skin is called in the game in the industry. In order to meet this obligation and to avoid regulatory scrutiny, many non-profit fund managers mobilized seed capital through innovative structures such as LLPs.

Therefore, the ultimate beneficiaries of these companies are either fund managers themselves or their immediate families. So far, Sebi has been lenient with such practices. However, concerns about cyclical fluctuations and the misuse of such organizational structures have led to a tough stance, raising concerns among fund managers with Indian ties.

Most of these funds belong to jurisdictions such as Mauritius, the Cayman Islands, and Luxembourg, which are famous for light local laws. Since most of these funds are integrated into these countries, they attract minimal commitment.

Many Indians have been misusing the FPI track, although the regulations have been clear from the start, and since these funds are already regulated in their countries of origin, Sipi has so far the” no-interference “approach. The regulator has turned the heat on them.

In many jurisdictions, an entity that establishes a fund is required to place part of its own funds. For example, in Singapore, the Fund Manager must invest Rs. 240,000 as initial capital.

Concepts such as funds of ingenuity or the contribution of the public partner are very common during the preparation of the funds, where the fund manager must have his skin in the game, but if any information bureau makes such an investment, it is a direct violation of the FPI rules.

Under the FPI rules, NRI cannot be a useful owner of a foreign fund. In addition, the market regulator has modified the definition of the beneficial owner. Under the new rules, a person of Indian origin cannot own more than 15 percent in a partnership fund and 25 percent if organized as a company.

Round-tripping roadblocks

1. Sipi sought to obtain investment information and information regarding the end beneficiaries of some foreign portfolio investors (FPIs) from their holders.
2. Funds subject to the examination shall be managed by non-resident Indians or persons of Indian origin (PIO)
3. According to the rules of Sebi, PIO can act as an investment manager for a foreign fund and is not allowed to place his own money
4. However, many fund managers have invested this so-called initial capital when financing starts
5. These investments are in direct violation of the rules of Sebi
6. Sebi’s decision, taking into account concerns about the round of transfers of funds through foreign jurisdictions

The minimum is 10 percent if the Fund is in a high-risk jurisdiction notified to the Financial Action Task Force. Prior to the amendment, the ceiling was 51 percent of the total investment. Legal experts say obtaining information about actual fund owners investing in the country is not a major challenge for Sebi.

Sebi can access all FPI trading information and has access to proprietary information through quarterly deposits with these foreign funds.

When it comes to end-user information, SEBI has several memorandums of understanding with foreign regulators, So access to information should not be an issue.

In the past, a Supreme Court had appointed a special investigation team on black money that had expressed concern about the use of participatory observations and abuse of the stock exchange platform. This prompted Sebi to tighten the screws on foreign inflows. Another step by Sebi is also seen as a step in that direction.

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Certicom Consulting [ Kedia Arpana & Co ] is a group of Chartered Accountants in the business of Small Business Setup & Statutory Compliance including for Professionals for the past 15 years. We have been an established and popular company with an excellent track record for the best customer satisfaction.

Certicom Consulting

Certicom Consulting [ Kedia Arpana & Co ] is a group of Chartered Accountants in the business of Small Business Setup & Statutory Compliance including for Professionals for the past 15 years. We have been an established and popular company with an excellent track record for the best customer satisfaction.