SEBI: Clarification on Clubbing of Investment limits for FPIs

The Securities Exchange Board of India (SEBI) in its meeting dated December 12, 2018, had decided that Beneficial Ownership (BO) criteria in Prevention of Money laundering (Maintenance of Records) Rules, 2005 should be made applicable for the purpose of KYC only and not for clubbing of investment of Foreign Portfolio Investors (FPIs).

Pursuant to that, SEBI has issued a clarificatory note (the “Clarification”) on December 13, 2018 which deals with this aspect.

Earlier, vide Circular No. CIR/IMD/FPIC/CIR/P/2018/132 dated September 21, 2018, it was laid down that Non Resident Indians (NRIs)/Overseas Citizens of India(OCIs)/Resident Indians(RIs) are allowed to be constituents of FPI subject to the maximum contribution to the corpus of FPI by NRI/OCI/RI including those of NRI/OCI/RI controlled investment manager should be below a 25% threshold from a single NRI/OCI/RI and below 50% in aggregate to the corpus of FPI.

Key Highlights of the Clarification:

  • The Clarification supersedes SEBI Circular No. CIR/IMD/FPIC/CIR/P/2018/64 (‘KYC Requirements for FPI’) and partially modifies SEBI Circular No. SEBI/HO/IMD/FPIC/CIR/P/2018/66 (‘Clarification on clubbing of Investment limits of FPI’) both dated April 10, 2018.
  • Clubbing of investment limits for FPI will be on the basis of common ownership of more than 50% or based on common control, and not Beneficial Ownership.

Control includes the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of shareholding or management rights or shareholders agreements or voting agreements or in any other manner.

  • Exemption from clubbing of Investment limits is provided for the FPIs which are:
    1. appropriately regulated by public retail funds; or
    2. public retail funds majority owned by appropriately regulated public retail funds majority owned by appropriately regulated public retail funds on look through basis; or
  • public retail funds and investment managers of such FPI are appropriately regulated.

Public retail funds mean (i) mutual funds or unit trusts which are open for subscription to retail investors and do not have specific investor type requirements e.g.  accredited investors etc, (ii) insurance companies where segregated portfolio with one to one correlation with a single investor is not maintained and (iii) pension funds.

  • It clarifies that, if two or more FPIs including foreign governments/ related entities are having direct or indirect common ownership of more than 50% or control all such FPIs will be treated as forming part of an investor group and the clubbing would apply.
  • Investment of foreign government agencies shall be clubbed with the investment by foreign govt./ its related entities for the purpose of calculation of 10% limit of FPI investments in a single company, if they form part of an investor group.
  • Investments from foreign government or its related entities from provinces/ states of countries following a federal structure shall not be clubbed if the foreign entities have different ownership and control.
  • In cases of breach of clubbing limits an FPI will either:
    1. Divest its holding within five trading days from the date of settlement of trades to bring its shareholding below 10% of the paid-up capital of the company; or
    2. treat the said investment shall be treated as FDI from the date of breach and comply accordingly.



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