Sebi eases norms for clubbing of investment limits by FPIs

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New Delhi | Published: December 13, 2018 7:08:49 PM

Capital markets regulator Sebi Thursday relaxed its norms for clubbing of investment limits by well regulated foreign investors.

sebi, mutual fundsThe regulator said that clubbing of investment limit should not be done on the basis of same set of beneficial owners as per the Prevention of Money Laundering Act.

Capital markets regulator Sebi Thursday relaxed its norms for clubbing of investment limits by well regulated foreign investors. The move comes a day after the board of Sebi approved a proposal in this regard. Currently, the foreign portfolio investors (FPIs) are treated as part of the same investor group and the investment limits of all such entities are clubbed for deriving the investment limit as applicable to a single FPI, in case of the same set of ultimate beneficial owners investing through multiple entities.

Under the new norm, multiple entities having common ownership, directly or indirectly, of more than 50 per cent will be treated as part of the same investor group and their investment limits would be clubbed, the regulator said in a circular. Besides, the clubbing of investment limit would not be applicable in case of entities having common control, if the FPIs are appropriately regulated public retail funds. Public retail funds typically include insurance companies, pension funds and mutual funds or unit trusts that are open for retail subscriptions.

The regulator said that clubbing of investment limit should not be done on the basis of same set of beneficial owners as per the Prevention of Money Laundering Act. The move was based on the suggestions of a Sebi working group headed by HR Khan, former deputy governor at RBI. In case, two or more FPIs, including foreign governments, their related entities are having direct or indirect common ownership of over 50 per cent, the Sebi said all such FPIs will be treated as forming part of an investor group. Also, the investment limits of all such entities will be clubbed at the investment limit as applicable to a single FPI.

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In cases where Indian government enters into agreements or treaties with other sovereign governments and where such agreements or treaties specifically recognise certain entities to be distinct and separate, the Sebi would during the validity of such treaties, recognise them as such. According to the Sebi, investment by foreign government agencies will be clubbed with the investment by the foreign government and its related entities for the purpose of calculation of 10 per cent limit for FPI investments in a single company, if they form part of an investor group.

However, the investment by foreign government, its related entities from provinces of countries with federal structure will not be clubbed. In respect of any breach of the investment limit, FPI in breach will have to divest its holding within 5 trading days from the date of settlement of the trades to bring its shareholding below 10 per cent of the company’s total stake or the said investments will be treated as foreign direct investment from the date of breach.

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