SEBI proposes new rules to expand resident Indian participation in FPIs

The Securities and Exchange Board of India (SEBI) has proposed changes to make it easier for resident Indians to participate in Foreign Portfolio Investors (FPIs). The market regulator released a consultation paper on August 8, seeking public comments by August 29.

Key proposals

Allow retail schemes in IFSCs to register as FPIs

SEBI has proposed that retail schemes based in Financial Services Centres (IFSCs) in India, with resident Indian non-individuals as sponsors or managers, should be allowed to register as FPIs.

Retail schemes are offered to a broad set of investors without a cap on the number of investors.

They must have at least 20 investors, with no single investor holding more than 25% of the scheme, and cannot invest more than 10% of assets in a single company.

Align contribution limits with IFSCA rules

Currently, FPI rules cap resident Indian non-individual contributions at 2.5% for Category I & II Alternative Investment Funds (AIFs) and 5% for Category III AIFs.

SEBI now proposes to align these limits with Financial Services Centres Authority (IFSCA) regulations, which set the cap at 10% of the corpus (or assets under management for retail schemes).

The change would also replace the requirement for a sponsor/manager with “Fund Management Entity or its associate” for IFSC-based FPIs to match IFSCA’s terminology.

Permit Indian mutual funds to be part of FPIs

SEBI also proposes to allow Indian mutual funds to be constituents of overseas mutual funds or unit trusts registering as FPIs, provided they meet conditions outlined in SEBI’s November 4, 2024, circular. This aims to help Indian mutual funds diversify globally, even in funds that invest in Indian securities.

Why it matters

These proposals aim to harmonise SEBI’s FPI framework with IFSCA’s fund management regulations, reduce compliance burdens, and expand investment opportunities for resident Indians.