Clarifications continue to FPI Norms

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Earlier discussed here, Foreign Portfolio Investors (“FPI”) Norms have seen concentrated regulatory developments with the rollout of April 2018 Circulars, the HR Khan Working Committee’s interim report as well as the September 2018 Circular which provided some clarity towards Eligibility, Beneficial Ownership and Clubbing of Investment Limits.

In September, vide Circular No. CIR/IMD/FPIC/CIR/P/2018/132 dated September 21, 2018, SEBI laid down that NRIs/OCIs and 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 be below a 25% threshold from a single NRI/OCI/RI and below 50% in aggregate. It clarified that an RI’s contribution is one permitted under Liberalized Remittance Scheme approved by RBI in global funds with Indian exposure not exceeding 50%. SEBI had thereby declared that an NRI/OCI/RI cannot be in control of FPI but FPI can be controlled by Investment managers controlled or owned by NRI/OCI/RI subject to the Investment manager being appropriately regulated in home jurisdiction and registered with SEBI as non-investing FPI and being incorporated or set up under Indian laws and registered with SEBI. In this regard, a two year period was granted for becoming eligible.

SEBI issued Circular No. SEBI/HO/IMD/FPIC/CIR/P/2018/150 on December 13, 2018 with a view to providing clarification on clubbing of investment limits of Foreign Portfolio Investors (“FPI”).  This Circular 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’) dated April 10, 2018. This circular mainly clarifies the position of foreign government/ related entities and relieves public retail funds* among others from the investment limit clubbing.

The Latest circular clarified firstly that the clubbing of investment limit for FPIs will be on basis of Common Ownership of more than 50% or based on common control.

Exemption from clubbing of Investment limits is provided for the FPIs which are firstly, appropriately regulated by public retail funds[1] or secondly, which are public retail funds majority owned by appropriately regulated public retail funds majority owned by appropriately regulated public retail funds on look through basis or thirdly are public retail funds and investment managers of such FPI are appropriately regulated.

There were concerns and the demand that there should be an ease with reference to Government investors. The Circular clarifies that where two or more FPIs including foreign governments/ their related entities are having a direct or indirect common ownership of more than 50% or control, all such FPIs shall be treated as forming part of an investor group and clubbing would of investment limits apply.

However it does require recognition to those agreements entered into by the Government of India with other Governments which specifically recognize certain entities to be distinct and separate. Further, there would be no clubbing where investment is by foreign government/ related entities from provinces/ states of countries with a federal structure.

Further, if the foreign government/related agencies form part of an investor group, clubbing of the 10% investment limit for a single company would be accordingly calculated.

As a measure to ensure compliance, breach of these requisites, would require the FPI to divest its holding within five trading days from the date of settlement of the trades to bring its shareholding below 10% of the paid up capital of the company or the investment would be treated as FDI from the date of breach.

It is noteworthy that the Circular clarifies control to include ‘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 or indirectly, including by virtue of shareholding or management rights or shareholders agreements or voting agreements or in any other manner’.

The Clarifications are pertinent in light of perceived stringency of the previous Circulars and removes difficulties that existed resulting of Common Beneficial Ownership as the prescribed yardstick for clubbing of investment limits.

Manal Shah


[1] Mutual funds or unit trusts which are open for subscription to retail investors and do not have specific investor type requirements, insurance companies where segregated portfolio with one to one correlation with a single investor is not maintained and pension funds.


SEBI Circular dated December 13, 2018.

SEBI Circular dated September 21, 2018.

SEBI Circular dated August 21, 2018 ‘Amendment to ‘KYC Requirements for FPI’.

SEBI Circular dated April 10, 2018 ‘Clarification on clubbing of Investment limits of FPI’.

SEBI Circular dated April 10, 2018 ‘KYC Requirements for FPI’


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