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New SEBI notification -- Foreign cos, individuals can invest via FIIs

S. Muralidhar

K.R. Srivats

NEW DELHI, Oct. 27

IN a move aimed at expanding the base of overseas portfolio investors and to open up the business of portfolio management services (PMS) for foreigners, the Securities and Exchange Board of India (SEBI) has now permitted foreign corporates and individual s to invest in the Indian capital markets through the foreign institutional investors' (FIIs) route.

The market watchdog has amended the SEBI (Foreign Institutional Investors) Regulations, 1995 to include a new proviso allowing FIIs to invest on behalf of foreign corporates and individuals through sub-accounts, with a stipulation that investment under e ach of such sub-accounts should not exceed five per cent of the total issued capital of the company being invested in.

For other category investors, such as broad-based funds, investing through FII sub-accounts, the limit continues to be 10 per cent for each of these sub-accounts.

Accordingly, SEBI has notified the change to sub-regulation 6 of Regulation 15 of the SEBI(FII) Regulations, 1995.

The total investment made by all investors in the category of foreign corporates and individuals should stay within the ceiling of five per cent of the total issued capital of the company. This ceiling would, in turn, be within the aggregate limit of 40 per cent of issued capital specified for FII portfolio investment. This limit had been enhanced from 30 per cent to the present level earlier this year.

The board of SEBI had, in January, cleared the proposal to permit foreign corporates and individuals to invest in the capital market through the 540-odd registered FIIs. The regulations had till now only allowed portfolio investments by FIIs on their own account or on behalf of broadbased funds.

Acting on representations received from foreign companies and individuals, expressing their willingness to invest in the Indian markets through the FII route, SEBI decided to allow the same. When contacted, a number of FIIs welcomed the move and pointed out that portfolio management services would receive a fillip following the notification.

A senior FII official said that the SEBI has effectively refined its current FII regulation, while also allowing new category of investors in the capital markets. He added that the new proviso will also help the market regulator to enhance its monitoring abilities regarding the nature and source of portfolio inflows from abroad.

SEBI has also strengthened the monitoring mechanism by mandating that the FIIs representing such foreign individuals

and companies need to undertake due diligence about the legitimacy of the source of funds as well as confirm that the investing entity is registered with the relevant tax authorities.

The SEBI Board had also announced that as far the new ceiling of five per cent was concerned, non-resident Indians (NRIs) and overseas corporate bodies (OCBs) be excluded from the category of foreign companies and individuals as they already have a separ ate investment limit of 10 per cent.