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SEBI (Foreign Portfolio Investors) Regulations, 2014

SEBI has notified the SEBI (Foreign Portfolio Investors) Regulations 2014 (FPI Regulations) to come into effect from 7 January 2014. Provide a brief snapshot of the objective of the FPI Regulations, besides also indicating that FPI Regulations when notified, the FII Regulations and the QFI related SEBI Circulars will stand rescinded. Also, how the FII/SA holding valid certificate of registration shall automatically be deemed to be FPIs under the FPI Regulations. Please refer the relevant para in the Regulations to bring out the relevant provision here.

The key features of the FPI Regulations are as below -

Eligibility Criteria of FPIs

Some of the conditions for registration as a FPI are -

  • The applicant should be a person who is resident outside India. However a non-resident Indian is not eligible to be registered as a FPI. The terms 'person', 'non-resident' and 'resident in India' are to be interpreted as provided under the Income Tax Act, 1961.
  • No person/ entity shall trade in securities as a Foreign Portfolio Investor unless it has obtained a certificate, granted by the Designated Depository Participant (DDP).
  • A FPI should be resident in a country which is signatory to the IOSCO MMoU or has signed a bilateral MOU with SEBI and should not be resident in a country identified in public statement of FATF.
  • The person should be legally permitted to invest in securities outside the country of its incorporation or establishment or place of business.
  • The person should have sufficient experience, good track record, be professionally competent, financially sound, have a generally good reputation of fairness and integrity and meet the fit and proper person criteria specified by SEBI.
  • The applicant should not have an "opaque structure" i.e. any structure such as protected cell company, segregated cell company or equivalent, where the details of the ultimate beneficial owners are not accessible or where the beneficial owners are ring fenced from each other or where the beneficial owners are ring fenced with regard to enforcement. Applicants satisfying the following criteria will not be treated as having an opaque structure:
    • The applicant is regulated in its home jurisdiction;
    • Each fund or sub fund in the FPI satisfies broad based criteria; and
    • The applicant undertakes to provide information regarding its beneficial owners as and when sought by SEBI.

Category of Foreign Portfolio Investor

Following are the three categories under which an FPI may seek registration -

 Category ICategory IICategory III)
Types of Entities - Please use the verbiage as stated in the Regulations.Govt and Govt related entities e.g. Foreign Central banks, Sovereign Wealth Funds, Multilateral Organizations etc.Regulated Entities e.g.
Broad Based Fund
Banks, Asset Mgt Co, Mutual Funds, Investment Trusts, Insurance and reinsurance companies, University Funds, Pension Funds and University related endowments registered with SEBI.
All other entities not classified in the other two categories such as Endowments, Charitable societies, Charitable Trusts, Foundations, Corporate Bodies, Trusts, Individuals, Family Offices.

Investment Avenues for FPI

A FPI can invest only in the following securities namely -

  • Securities in the primary and secondary markets including shares, debentures and warrants of companies, listed or to be listed on a recognized stock exchange in India;
  • Mutual Fund Units, whether listed on a recognized stock exchange or not;
  • Units of schemes floated by a Collective Investment Scheme;
  • Derivatives traded on a recognized stock exchange;
  • Treasury Bills and dated Government Securities;
  • Commercial Papers issued by an Indian company;
  • Rupee denominated credit enhanced bonds
  • Security Receipts issued by Asset Reconstruction Companies;
  • Perpetual Debt instruments eligible for inclusion as Tier I capital and Debt
    Capital instruments as upper Tier II capital issued by banks in India, provided that the investment by eligible investors in Perpetual Debt instruments (Tier I) shall not exceed an aggregate ceiling of 49 per cent of each issue,
  • Listed and unlisted non-convertible debentures/bonds issued by an Indian company in the infrastructure sector;
  • Non-convertible debentures / bonds issued by Non-Banking Finance Companies categorized as Infrastructure Finance Companies'(IFCs) by the Reserve Bank of India;
  • Rupee denominated bonds or units issued by Infrastructure Debt Funds.
  • Indian Depository Receipts; and
  • Such other instruments specified by the Board from time to time.

Operational requirements:

  • Designated Depository Participants (DDPs) are empowered to register FPI on behalf of SEBI. No registration requirement with SEBI.
  • The DDPs will do the KYC and the due diligence of the FPI before registering them. Risk based approach to be followed for KYC.
  • Appointment of DDPs is mandatory for all FPIs.

Issuance of Certificate by Designated Depository Participant (DDP)

Issuance of Certificate by DDP will be done within 30 days .
Registration by SEBI has been done away with for FIIs including their sub-accounts, if any. Generally, it is expected that a DDP will register FPI within 30 days from receipt of application for registration, complete in all respects. In the event of any grievance for seeking registration, the FPI may approach SEBI for appropriate instructions.

  • A Foreign Portfolio Investor needs to transact through only one DDP.

Continuity of Business for FIIs/ Sub Account/ QFIs

  • All existing FII or sub-account may, continue to buy, sell or otherwise deal in securities till the expiry of its registration as an FII or sub-account or until it obtains FPI registration, whichever is earlier
  • A QFI may continue to buy, sell or otherwise deal in securities, for a period of 1 year i.e. upto 7 January 2015 or until it obtains FPI registration, whichever is earlier.

Offshore Derivatives Instruments - Conditions for issuance

Category I and category II FPIs (except for unregulated broad based funds) can issue, subscribe to or otherwise deal in offshore derivative instruments (ODIs), directly or indirectly subject to the following conditions:

  • ODIs are issued only to persons regulated by an appropriate foreign regulatory authority;
  • ODIs are issued after compliance with 'know your client' norms:
The following are prohibited from issuing, subscribing or otherwise dealing in ODIs directly or indirectly
  • Unregulated broad based funds, classified as Category II FPI by virtue of their investment manager being appropriately regulated
  • Category III FPI

FPI is required to ensure that further issue or transfer of any ODIs issued by or on behalf of it is made only to persons who are regulated by an appropriate foreign regulatory authority

ODIs issued under FII Regulations are deemed to have been issued under the corresponding provision of these regulations


In the preparation of the material contained in this document, Kotak Mahindra Bank has used information that is publicly available, including information developed inhouse. Some of the material used in the document may have been obtained from members/persons other than the Kotak Mahindra Bank and/or its affiliates and which may have been made available to Kotak Mahindra Bank and/or its affiliates. Information gathered & material used in this document is believed to be from reliable sources. Kotak Mahindra Bank however does not warrant the accuracy, reasonableness and/or completeness of any information. For data reference to any third party in this material no such party will assume any liability for the same. Kotak Mahindra Bank and/or any affiliate of Kotak Mahindra Bank does not in any way through this material solicit any offer for purchase, sale or any financial transaction/commodities/products of any financial instrument dealt in this material. All recipients of this material should before dealing and or transacting in any of the products referred to in this material make their own investigation, seek appropriate professional advice.

We have included statements/opinions/recommendations in this document which contain words or phrases such as "will", "expect" "should" and similar expressions or variations of such expressions, that are "forward looking statements". Actual results may differ materially from those suggested by the forward looking statements due to risks or uncertainties associated with our expectations with respect to, but not limited to, exposure to market risks, general economic and political conditions in India and other countries globally, which have an impact on our services and / or investments, the monetary and interest policies of India, inflation, deflation, unanticipated turbulence in interest rates, foreign exchange rates, equity prices or other rates or prices, the performance of the financial markets in India and globally, changes in domestic and foreign laws, regulations and taxes and changes in competition in the industry. By their nature, certain market risk disclosures are only estimates and could be materially different from what actually occurs in the future. As a result, actual future gains or losses could materially differ from those that have been estimated.

Kotak Mahindra Bank (including its affiliates) and any of its officers directors, personnel and employees, shall not be liable for any loss, damage of any nature, including but not limited to direct, indirect, punitive, special, exemplary, consequential, as also any loss of profit in any way arising from the use of this material in any manner. The recipient alone shall be fully responsible/ are liable for any decision taken on the basis of this material. The investments discussed in this material may not be suitable for all investors. Any person subscribing to or investing in any product/financial instruments should do so on the basis of and after verifying the terms attached to such product/financial instrument. Financial products and instruments are subject to market risks and yields may fluctuate depending on various factors affecting capital/debt markets. Please note that past performance of the financial products and instruments does not necessarily indicate the future prospects and performance thereof. Such past performance may or may not be sustained in future. Kotak Mahindra Bank (including its affiliates) or its officers, directors, personnel and employees, including persons involved in the preparation or issuance of this material may;
(a) from time to time, have long or short positions in, and buy or sell the securities mentioned herein or
(b) be engaged in any other transaction involving such securities and earn brokerage or other compensation in the financial instruments/products/commodities discussed herein or act as advisor or lender / borrower in respect of such securities/financial instruments/products/commodities or have other potential conflict of interest with respect to any recommendation and related information and opinions. The said persons may have acted upon and/or in a manner contradictory with the information contained here. No part of this material may be duplicated in whole or in part in any form and or redistributed without the prior written consent of Kotak Mahindra Bank. This material is strictly confidential to the recipient and should not be reproduced or disseminated to anyone else.

Mutual funds, like securities investments, are subject to market and other risks and there can be no assurance that the Scheme's objectives will be achieved. As with any investment in securities, the NAV of units issued under the scheme can go up or down depending on the factors and forces affecting capital markets.

What are P-Notes?

  • P-Notes are financial instruments which are issued by a FII against securities held by it as its underlying, in the Indian Capital Market, that are listed or proposed to be listed.
  • Thus, P-notes enables the eligible foreign investors to participate in the Indian Capital Markets ; both debt and equity, without registering itself with the market regulator

How does it work?

  • Institutions registered with the Securities and Exchange Board of India (SEBI) as Foreign Institutional Investors ("FII") can issue P-Notes against consideration received from eligible investors.

Account Set-up / KYC

  • The Investor will invest through SEBI registered FII.

Custody and Clearing

  • Investors can use their own custodians for holding & settlement of P-Notes.

*above material is for information purposes only.

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