Move to benefit investors from countries and regions like
Mauritius, Cayman Islands who are eyeing Category-I licence.
The Securities
and Exchange Board of India (Sebi) has relaxed its guidelines for foreign
portfolio investors (FPIs) seeking a Category-I licence, a move seen giving a
boost to overseas investment in stocks.
Investors from
countries which are not Financial Action Task Force (FATF) members can still
qualify for such registrations if the countries are specified by the Indian
government. The move may benefit funds and investments routed through
countries, such as Mauritius and those from West Asia, and aid overseas flows
coming into India, said experts.
At present, the
FATF has 39 members, including Australia, Singapore, Luxembourg, South Korea,
the US, the UK, and China. West Asian nations, such as Bahrain, Oman, Qatar,
Kuwait, and the UAE are not its members.
Nearly 80 per cent
of FPIs were put under Category-I after the reclassification of three
categories into two in September last year. Being part of Category I implies
lower compliance burden, simplified know-your-customer (KYC) norms and
documentation requirements, and fewer investment restrictions. Such investors
can subscribe and issue offshore derivative instruments and are not subject to
indirect transfer provisions.
Prior to the
reclassification, less than 3 per cent FPIs were part of Category-I and more
than four-fifths were part of Category-II. About 13 per cent of the funds were
classified as Category-III.
“The move will
expand the list of countries eligible for the Category-I status beyond the FATF
member countries. It will not only mean fewer KYC requirements for FPIs from
such countries but also exemption from indirect share transfer regulations,”
said Rajesh Gandhi, partner, Deloitte India. “Along with the MSCI
index rejig, this will help boost inflows into India, especially from
India-focused funds.”
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