Frequently Asked Questions Foreign Portfolio Investor Question 1 Who is a Foreign Portfolio Investor (FPI)? Response FPI is a resident in a country other than India, whose securities market regulator is a signatory to IOSCO s MMOU (Appendix A Signatories) or a signatory to a bilateral MOU with SEBI. In case of a Bank, it should be resident of a country whose central bank is a member of the Bank for International Settlements (BIS). 2 Which are the eligible foreign investor categories who can register as FPIs? The person should not be resident in a country listed in the public statements issued by FATF (high risk and non-compliant countries) from time to time on - a. jurisdictions having a strategic Anti-Money Laundering/ Combating the Financing of Terrorism (AML/CFT) deficiencies to which counter measures apply or b. jurisdictions that have not made sufficient progress in addressing the deficiencies or have not committed to an action plan developed with the FATF to address the deficiencies. The following category of investors are eligible to register as FPIs: Category I Government and Government related investors such as Central Banks, Governmental agencies, sovereign wealth funds, international/ multilateral organisations/ agencies. Category II - Appropriately regulated broad based funds such as mutual funds, investment trusts, insurance/ reinsurance companies, appropriately regulated persons such as banks, asset management companies, investment managers/ advisors, portfolio managers, broad based funds that are not appropriately regulated whose investment manager is appropriately regulated, university funds and pension funds as well as university related endowments already registered with SEBI as FII/ sub-account. The investment manager(s) of unregulated broad based funds should first register themselves as Category II FPI and must undertake that they shall be responsible and liable for all acts of commission and omission of all its underlying broad based funds and other deeds and things done by such broad based funds under these regulations. 3 What is the meaning of appropriately regulated? Category III - All other FPIs not eligible under Category I and II such as Endowments, Charitable Societies/ Trust, Foundations, Corporate Bodies, Trusts, Individuals, Family Offices, etc. An applicant is considered to be appropriately regulated if it is regulated or supervised by the securities market regulator or the banking regulator of the concerned foreign jurisdiction, in the same capacity in which it proposes to make investments in India.
4 What is the definition of broad based fund? Broad based fund is a fund, established or incorporated outside India, which has at least twenty investors, with no investor holding more than forty-nine per cent of the shares or units of the fund: If the fund has an institutional investor who holds more than 49% of the shares or units in the fund, then such institutional investor must itself be a broad based fund for the fund to meet the broad based criteria. For ascertaining the number of investors in a fund, direct investors as well as underlying investors shall be considered. However, only investors of entities which have been set up for the sole purpose of pooling funds and making investments shall be considered for the purpose of determining underlying investors. 5 Do FPIs need to register with SEBI? No. FPIs would not require direct registration from SEBI and they would be henceforth subject to registration being granted by a designated depository participant (DDP) on behalf of SEBI. 6 What eligibility criteria will be considered for grant of certificate of registration to a foreign portfolio investor? The FPI applicant should satisfy the following conditions: The applicant is a resident of a country whose securities market regulator is a signatory to IOSCOs MMOU (Appendix A Signatories) or a signatory to bilateral MoU with SEBI If the applicant is a bank, the applicant should be a resident of a country whose central bank is a member of BIS the applicant should not be resident in a country identified in the public statement of FATF as: (i) a jurisdiction having a strategic AML/ CFT deficiency to which counter measures apply; or (ii) a jurisdiction that has not made sufficient progress in addressing the deficiencies or has not committed to an action plan developed with the FATF to address the deficiencies The applicant is not a non-resident Indian The applicant is legally permitted to invest in securities outside the country of its incorporation or establishment or place of business The applicant is authorised by its Memorandum of Association and Articles of Association or equivalent document(s) or the agreement to invest on its own behalf or on behalf of its clients The applicant has sufficient experience, good track record, is professionally competent, financially sound and has a generally good reputation of fairness and integrity The grant of certificate to the applicant is in the interest of the development of the securities market The applicant is a fit and proper person based on the criteria specified in Schedule II of the SEBI (Intermediaries) Regulations, 2008 Any other criteria specified by the SEBI and / or the DDP from time to time.
7 How does an FPI apply for a certificate of registration? An FPI has to obtain a certificate of registration from a DDP who will grant registration on behalf of SEBI. An application for the grant of certificate as FPI must be made to the DDP in Form A as provided in the SEBI FPI regulations, 2014 (regulations) and must be accompanied by the applicable fee and supporting documents prescribed under the regulations for each investor category such as PCC/ MCV Declarations and Undertakings as required under the regulations. 8 How much is the applicable fees payable for grant of registration? In case the applicant is a bank or its subsidiary, the DDP will forward the relevant details of the applicant to SEBI who would in turn request RBI to provide its comments. Based on the comments received from RBI, SEBI would intimate the comments of RBI to the DDP accordingly. FPIs belonging to Category I are exempted from payment of registration fees. Where many FPIs have common beneficial owner(s), only one FPI shall be exempt from payment of registration fee under Category I and the other FPI s shall pay registration fees as applicable to Category II, except where the beneficial owner is an international/ multilateral agency such as World Bank and other institutions, established outside India for providing aid, which have been granted privileges and immunities from payment of tax and duties by the Indian Government. FPIs belonging to Category II have to pay registration fees of USD 3000 while Category III FPIs have to pay USD 300. 9 What is the status of registration for existing FIIs and sub-accounts This fee is payable for every block of three years, till the validity of its registration. All existing FIIs and sub accounts can continue to buy, sell or otherwise deal in securities under these regulations till the validity of their existing registration or upon payment of a conversion fee of USD 1,000 to convert from FII / Sub Account to FPI status, whichever is earlier. 10 Can a newly incorporated/ established fund seeking to register itself as a broad based fund under Category II, but does not satisfy the broad based criteria at the time of making application, be granted registration? The application must be made as per Form A as provided in the regulations and must be accompanied by supporting documents, as prescribed by the regulations or by SEBI from time to time. Yes. If the applicant is newly incorporated/ established seeking to register itself as a broad based fund under Category II, but does not satisfy the broad based criteria at the time of making application, the DDP may consider grant of conditional registration, with validity period of 180 days to such applicant if: 1. The applicant is an India dedicated fund or undertakes to make investment of at least 5% corpus of the fund in India 2. The applicant undertakes to comply with the broad based criteria within 180 days
11 How does the applicant confirm compliance with the broad base requirement? For the DDP to assess compliance with the broad based criteria, the FPI must provide details of investors to the DDP who will perform appropriate due-diligence and issue an acknowledgement regarding fulfilment of broad based criteria, if it is satisfied. With this acknowledgement, the conditional registration shall be treated as registration, henceforth. If the FPI fails to satisfy the DDP that it has attained broad based status within 180 days, it shall be reclassified as category III. 12 While paying the conversion fees of USD 1000, does the FII or subaccount have to submit an application/ documents? SEBI has further clarified that if an existing broad based fund registered as Category II FPI, ceases to remain broad based on account of redemption etc., the applicant would be required to attain broad based status within 180 days and the same procedure outlined above will be followed. Yes. At the time of payment of conversion fees, existing FIIs and subaccounts will need to complete Form A as provided in the FPI regulations and enclose applicable documents required for the purpose of conversion to FPI. 13 Is it necessary to pay the conversion fee now or can it be paid upon expiry of the FIIs 3 years block? 14 Is it possible to register a new FIIs or sub-accounts who want to immediately commence investments in India? 15 What about renewal of registration? Is it mandatory to convert to FPI if the registration is due for expiry in February 2014? An applicant, which is an international/ multilateral agency such as World Bank and other institutions, established outside India for providing aid, which have been granted privileges and immunities from payment of tax and duties by the Indian Government are exempted from payment of such fees. The payment of conversion fees can be made now or at the time of expiry of FII/Sub Account in the three year block validity, however if the fees are paid at the time of expiry, then the FII will also need to pay the applicable renewal fees over and above the conversion fee. For example, if the FIIs registration is expiring in May 2016, the FII will need to pay USD 1,000 and USD 3,000 (if it falls under Category II) one month prior i.e. April 2016. Yes. Any application for grant of certificate as FII or sub-account pending before SEBI shall be dealt with in accordance with the SEBI FII Regulations, 1995. SEBI may continue to grant certificate of registration as an FII or sub-account under the SEBI FII Regulations, 1995 till March 31, 2014, which may be extended up to June 30, 2014 by SEBI. These timelines are currently based on the expectation that the FPI regime may go live from April 1, 2014. No. It is not mandatory to convert to FPI at this stage. SEBI has verbally clarified that they will accept applications for renewals due this year, however, the grant of renewal will be linked to the implementation date of the FPI regime. To clarify further, SEBI has advised they will process only those renewal applications whose registration will expire three months after the implementation date. For example, if the implementation date is April 1, 2014, SEBI will process renewal applications that are due to expire on or before June 30, 2014. Any pending applications with SEBI beyond June 30, 2014 shall be returned to the custodian. 16 Will this be similar for QFIs? No. Existing QFIs can continue to buy, sell or otherwise deal in securities under the FPI regulations for a period of one year i.e. till January 6, 2015 or upon obtaining a certificate of registration as FPI, whichever is earlier. 17 What does the regulation specify in case of multiple FPIs have common beneficial ownership? Where multiple FPIs belong to the same investor group, the investment limits of all such FPIs shall be clubbed at the investment limit as applicable to a single FPI. It is expected that the depositories shall be responsible for such monitoring.
18 What do the regulations prescribe for the purpose of ascertaining common investor group? For the purpose of ascertaining investor group, the concerned DDPs is required to consider all such entities having direct or indirect common shareholding/ beneficial ownership/ beneficial interest of more than 50%, as belonging to same investor group. 19 What happens in case the aggregate holdings of FPIs belonging to the same investor group exceeds the stipulated limit? 20 Who is a Designated Depository Participant? Where different FPIs belonging to the same investor group are serviced by different custodians, the custodians shall report the holdings to both the depositories who will club the investment limits to ensure that combined holdings of all these FPIs does not exceed 10% of the issued capital of the investee company at any time. In case the aggregate holdings of FPIs belonging to the same investor group exceeds the stipulated limit for any reason whatsoever, the holdings have to be brought within the stipulated investment limit, in a reasonable period of time not exceeding seven days. DDP is an entity that is registered with SEBI as a Custodian, registered with the Reserve Bank of India (RBI) as an Authorised Dealer Category 1 bank and a Depository Participant registered with SEBI and licensed to register FPIs by SEBI and carry on the activity of providing custodial, banking and depository services to FPIs. The DDP is require to have multinational presence either through its branches or through agency relationships with intermediaries regulated in their respective home jurisdictions and should have systems and procedures to comply with the requirements of FATF Standards, PMLA, Rules prescribed there under and the circulars issued from time to time by SEBI. 21 What is the procedure followed by DDPs for grant for registration? A DDP should also be a fit and proper person as per the specified criteria. The DDP reviews the application for grant of certificate of registration and is required to dispose of it as soon as possible but not later than 30 days after receipt of application or, after any information called for has been furnished, whichever is later. Where an application does not satisfy the requirements specified in the regulations, the DDP can reject it after giving the applicant a reasonable opportunity of being heard. The decision to reject the application shall be communicated by the DDP to the applicant in writing stating therein the grounds on which the application has been rejected. If the applicant, is aggrieved by the decision of the DDP, they may, within a period of 30 days from the date of receipt of communication apply to SEBI for reconsideration of the decision of the DPP. SEBI will review the case and after giving a reasonable opportunity of being heard, convey its decision in writing to the applicant. 22 What is the validity period of FPI registration? The DDP will grant certificate of registration on behalf of SEBI, to an applicant if it is satisfied that the applicant is eligible and fulfils the requirements as specified in the regulations. The validity period of the FPI registration is permanent unless suspended or cancelled by SEBI or surrendered by the FPI, however this is subject to payment of the applicable renewal fee during every three year block.
23 Is it necessary for the FPI to appoint a Compliance Officer? Yes. Every FPI must appoint a compliance officer who will be responsible for monitoring the compliance of the Act, rules and regulations, notifications, guidelines and instructions issued by the designated depository participant or SEBI or the Central Government: In case an FPI is an individual, then the individual will be responsible for the above. 24 What are the permissible transactions allowed for FPI s investing into Indian securities? 25 Is there any cap on the maximum shareholding limit by FPI? 26 Can FPIs open bank accounts in India? The compliance officer is required to immediately and independently report to SEBI and the DDP regarding any non-compliance observed by him/ her. FPIs are permitted to transact only in the following: a. Securities in the primary and secondary markets including shares, debentures and warrants of companies, listed or to be listed on a recognised stock exchange in India b. Units of schemes floated by domestic mutual funds, whether listed on a recognised stock exchange or not c. Units of schemes floated by a collective investment scheme d. Derivatives traded on a recognised stock exchange e. Treasury bills and dated government securities f. Commercial papers issued by an Indian company g. Rupee denominated credit enhanced bonds h. Security receipts issued by asset reconstruction companies i. Perpetual debt instruments and debt capital instruments, as specified by the RBI j. Listed and unlisted non-convertible debentures/ bonds issued by an Indian company in the infrastructure sector, where infrastructure is defined in terms of the extant External Commercial Borrowings guidelines k. Non-convertible debentures or bonds issued by Non-Banking Financial Companies categorised as Infrastructure Finance Companies by the RBI l. Rupee denominated bonds or units issued by infrastructure debt funds m. Indian depository receipts n. Such other instruments specified by SEBI from time to time. Yes. The purchase of equity shares of each company by a single FPI or an investor group must be below 10% of the total issued capital of the company. Yes. FPIs have been permitted to appoint a branch of a bank authorised by the RBI for opening of foreign currency denominated account and special non-resident rupee account before making any investments in India. The RBI is yet to notify the changes under FEMA, 1999 to bring this into effect, along the terms and conditions for operating these accounts.
27 Can FPIs issue Offshore Derivative Instruments (ODI) or Participatory Notes (PNs)? FPIs cannot issue, subscribe to or otherwise deal in ODIs, directly or indirectly, unless the following conditions are satisfied: a. such ODIs are issued only to persons who are regulated by an appropriate foreign regulatory authority b. such ODIs are issued after compliance with know your client norms: Provided that those unregulated broad based funds, which are classified as Category II FPI by virtue of their investment manager being appropriately regulated shall not issue, subscribe or otherwise deal in ODIs directly or indirectly: Provided further that no Category III FPI shall issue, subscribe to or otherwise deal in ODIs directly or indirectly. An FPI should 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. 28 Can FPIs open more than one depository account? 29 In whose name should the securities be registered? 30 Can a FPI directly place order with a stock broker? 31 Can FPI purchase shares of an unlisted company? 32 Are there any conditions placed on stock market transactions. FPIs have to fully disclose to SEBI any information concerning the terms of and parties to ODIs such as PNs, equity linked notes or any other such instruments, by whatever names they are called, entered into by it relating to any securities listed or proposed to be listed in any stock exchange in India, as and when and in such form as SEBI may specify. No. Each FPI will be allowed to open only one depository account for their FPI investments. Further, purchase and sale of all eligible securities must be transacted through that depository account only. The securities should be registered in the name of FPI as a beneficial owner for the purposes of the Depositories Act, 1996. Yes. Similar to FIIs, an FPI can place order directly with the broker. No. FPIs are not permitted to purchase shares of an unlisted company. Further, as per the regulations, FPIs can hold, deliver or cause to be delivered securities only in dematerialised form: Provided that any shares held in physical form, before the commencement of the regulations, can be held in physical form, if such shares cannot be dematerialised. Yes, there are certain conditions on placed on stock market transaction of FPIs. Some of the important ones are: An FPI can transact in the securities only on the basis of taking and giving delivery of securities purchased or sold and no transaction on the stock exchange can be carried forward The transaction should be only through stock brokers registered by SEBI FPIs can deliver or cause to be delivered securities only in dematerialised form However, it may be noted that certain types of transactions have been excluded from meeting some of the above conditions. For example, the requirement of broker is relaxed for transactions in Government securities and such other securities falling under the purview of the RBI which shall be carried out in the manner specified by the RBI. 33 Can FPIs engage in borrowing or lending of funds or securities? Please refer to regulation 21 of the FPI regulations for details. Yes, FPIs are permitted to engage in borrowing or lending in accordance with the Securities Lending and Borrowing program of SEBI.
34 What is the clarity around taxation of FPIs? 35 Is the investment through the FPI route freely repatriable? 36 Apart from clarity on taxation is there any other regulatory change awaited for implementing FPI? The Central Board of Direct Taxes (CBDT) has notified changes to the Income Tax Act, 1961 (ITA) to classify Foreign Portfolio Investors registered under the SEBI FPI Regulations, 2014, as FIIs, by virtue of which FPIs will have the same tax treatment that was available to FIIs under section 115 AD of the ITA. Yes. Investment made through the FPI route is freely repatriable, subject to payment of applicable taxes. Yes. The following clarity is still awaited: 1. RBI has to notify the required changes to FEMA for opening, maintaining and operating cash accounts as well investments conditions and restrictions 2. The Depositories are expected to issue guidance for printing of registration certificate, reporting of FPI trades, monitoring of investment limits, formats of declarations for account opening etc 3. SEBI is expected to advise on margins applicable for Category III FPI trades and clarifications sought by DDPs on the operating guidelines 37 Is RBC I&TS subcustodian a DDP for a purpose of registering FPIs? As the above clarity is still awaited, we understand that FPI implementation may be delayed beyond 1 April 2014. We have requested SEBI to provide at least 4 weeks after all the above clarifications are issued to enable the market put in place the required infrastructure to implement the new regime. As per the SEBI FPI Regulations, 2014 a custodian of securities which is registered with SEBI, is deemed to have been granted approval as DDP subject to the payment of applicable fees. RBC I&TS subcustodian was the first to comply with this requirement and is the first deemed DDP in India.
Client type Certificate expiry date Impact SEBI fees payable Action Required FII certificate holders OR Sub-account certificate holders September 30, 2014 or earlier Clients can choose to renew their FII or sub-account registration before May 30, 2014 or convert to FPI from June 1, 2014 Renewal fees for FII and subaccounts are USD5000 and USD1000 respectively For conversion to FPI, For renewal of FII and subaccounts, the submission of completed conversion documentation and payments must be received by SEBI no later than May 30, 2013. One-time FPI conversion fee: USD1,000 FPI fees will be dependent on the FPI category Your RBC Investor & Treasury Services client manager will contact you shortly on the above. Category I : Nil Category II : USD3,000 for 3 years Category III : USD300 for 3 years FII certificate holders OR Sub-account certificate holders After September 30, 2014 Conversion to FPI is required. Clients will be granted FPI registration certificates upon submission of conversion application, supporting documentation, payment of conversion and FPI fees. One-time FPI conversion fee: USD1,000 FPI fees will be dependent on the FPI category Category I : Nil Category II : USD3,000 for 3 years Category III : USD300 for 3 years Submission of completed conversion documentation and payments to DDP prior to expiry. Your RBC Investor & Treasury Services client manager will contact you 6 months before the expiry of your registration certificates.
Client type Impact SEBI fees payable Action Required Clients planning for market entry into India New FPI applications will replace the existing FII / sub-account route. FPI fees will be dependent on the FPI category The new FPI application pack will be ready by April 18, 2014. Category I : Nil Category II : USD3,000 for 3 years Category III : USD300 for 3 years Please contact your RBC Investor & Treasury Services client manager. Clients preparing FII or sub-account applications Full and completed documentation must reach SEBI by May 30, 2014. Late submissions will be rejected. FPI fees will be dependent on the FPI category Submission of full and completed application and payments to SEBI by May 30, 2013. Category I : Nil Category II : USD3,000 for 3 years Category III : USD300 for 3 years Please contact your RBC Investor & Treasury Services client manager If you are in the process of preparing your application. Royal Bank of Canada 2013. RBC Investor & Treasury Services is a global brand name and is part of Royal Bank of Canada. RBC Investor & Treasury Services is a specialist provider of asset servicing, custody, payments and treasury services for financial and other institutional investors worldwide. RBC Investor Services operates through two primary operating companies, RBC Investor Services Trust and RBC Investor Services Bank S.A., and their branches and affiliates. In the UK, RBC Investor Services Trust operates through a branch authorized by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. The Dubai Branch of RBC Investor Services Trust is regulated by the Dubai Financial Services Authority. In Australia, RBC Investor Services Trust is authorized to carry on financial services business by the Australian Securities and Investments Commission under the AFSL (Australian Financial Services Licence) number 295018. In Singapore, RBC Investor Services Trust Singapore Limited (RISTS) is licensed by the Monetary Authority of Singapore (MAS) as a Licensed Trust Company under the Trust Companies Act and was approved by the MAS to act as a trustee of collective investment schemes authorized under S 286 of the Securities and Futures Act (SFA). RISTS is also a Capital Markets Services Licence Holder issued by the MAS under the SFA in connection with its activities of acting as a custodian. In Hong Kong, RBC Investor Services Bank S.A. is a restricted license bank and is authorized to carry on certain banking business in Hong Kong by the Hong Kong Monetary Authority. RBC Investor Services Trust Hong Kong Limited is regulated by the Mandatory Provident Fund Schemes Authority as an approved trustee. These materials are provided by RBC Investor & Treasury Services (RBC I&TS) for general information purposes only. RBC I&TS makes no representation or warranties and accepts no responsibility or liability of any kind for their accuracy, reliability or completeness or for any action taken, or results obtained, from the use of the materials. Readers should be aware that the content of these materials should not be regarded as legal, accounting, investment, financial, or other professional advice, nor is it intended for such use. / Trademarks of Royal Bank of Canada. Used under licence.