The capital market regulator Securities and Exchange Board of India came out with fresh guidelines that simplifies NRI and other investor group’s participation in FPIs (Foreign Portfolio Investors).

The new guidelines announced on Friday are expected to promote more investor participation under FPIs at a time when stock market is facing FPI exit threat.

On Friday, the BSE index lost nearly 1000 points intraday though the loss was restricted to 300 points at the close.

In the context of the rising performance of the US economy, Emerging Markets are expected to witness capital outflows. There is reports that the US equity market has witnessed nearly $15 bn fresh investment that is assessed as outflows from the Emerging Markets.

Earlier this year, SEBI issued restrictions for Indian participation on FPIs through NRIs and other overseas corporate bodies. Analysts then warned that such regulations will reduce investment flows into the market.

The fresh guidelines are related to KYC (Know Your Client) norms for FPIs and it says that the beneficial owner or the person who controls the FPI (like NRIs) should follow disclosure norms as per the KYC. Whereas they can make investment by maintaining non-controlling stake in FPIs.

As per the new guidelines, NRIs, OCIs (Overseas Citizens of India) and RIs (Resident Indians) have been permitted to hold non-controlling stake in FPIs, subject to certain conditions. If single and aggregate NRI/OCI/RI holding is below 25 per cent and 50 per cent, respectively, of the assets under management in the FPI, then such entities would be permitted to be constituents of the FPI. There is no restriction on them to manage non-investing FPIs Sebi-registered offshore funds as well as registered investment managers.

A non-investing FPI can be directly or indirectly owned or controlled by a NRI, OCI or RI.

SEBI reiterated that what is more important is the riskiness of investors. Hence, the simplified regulation implies that the beneficial ownership is less focused at least for the time being.

In the capital market, investors are classified as Category I, II and III in terms of their riskiness.

According to SEBI, FPIs under category II and III have to maintain a list of beneficial owners and the same has to be provided to it.

SEBI’s new guidelines are issued based on the recommendations of the Haroon R Khan panel. The Panel focused on Know Your Client (KYC) Requirements for Foreign Portfolio Investors (FPIs).

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