Sebi eases norms for clubbing investment limits by foreign investors

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.

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.

Dear Reader,

Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.

We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel