The Securities and Exchange Board of India (SEBI) has announced new regulations to streamline the framework for the registration of Foreign Venture Capital Investors (FVCIs). As per the new guidelines, the responsibility for granting FVCI registration and processing post-registration references has been delegated to designated depository participants (DDPs), aligning with the framework already established for Foreign Portfolio Investors (FPIs).
Role of Designated Depository Participants (DDPs)
Under the updated framework, any applicant seeking to register as an FVCI must engage a DDP for obtaining a registration certificate. Additionally, it is mandatory that the DDP and the custodian of the FVCI are the same entity. This delegation simplifies the registration process, which was previously handled directly by SEBI.
New requirements for FVCI registration
SEBI’s notification clarifies that no individual or entity can trade in securities as an FVCI without obtaining a certificate from a DDP, acting on behalf of SEBI. The FVCI must also appoint a domestic custodian to monitor its investments and provide periodic reports to SEBI.
Agreement with DDP and custodian
According to the new rules, an FVCI or its global custodian must enter into an agreement with both a DDP and a custodian before making any investments in India. This step ensures a clear oversight mechanism for foreign venture capital investments.
Updated eligibility criteria for FVCIs
SEBI has also revised the eligibility criteria for FVCIs, allowing Resident Indians (RIs), Non-Resident Indians (NRIs) and Overseas Citizens of India (OCIs) to contribute to the applicant’s corpus, subject to specific conditions. A single NRI, OCI, or RI contribution cannot exceed 25% of the total contribution, while their combined contribution must remain below 50%. Furthermore, these individuals should not have control over the FVCI applicant.
Currently, entities such as investment companies, investment trusts, pension funds, mutual funds and charitable institutions incorporated outside India, along with asset management companies and other investment vehicles, are eligible to apply for FVCI registration.
In line with SEBI’s amendments, FVCIs are required to hold their investments in dematerialized (demat) form. This change will come into effect on January 1, 2025.
FVCIs in India
FVCIs are investors incorporated outside India, primarily investing in unlisted securities of Venture Capital Undertakings and Venture Capital Funds. As of March 2023, 269 FVCIs were registered with SEBI, with total investments amounting to ₹48,286 crore in Indian investee companies.