Foreign Portfolio Investor Registration- An Overview
To understand the meaning of foreign portfolio investor registration, it is first important to know the meaning of a portfolio. A portfolio is understood as a group of securities which represents a specific pool of funds to carry out different forms of investment. Hence a foreign portfolio investor can be understood as an investor who invests in these securities.
Companies that issue shares and securities would be registered with the stock exchange. An Indian company that wants to register its securities in the stock exchange would have to comply with the requirements related to the Securities Exchange Board of India (SEBI).
Any person or institution who wants to deal in securities as a foreign portfolio investor would have to make an application and obtain the certificate of registration from the respective board. Even an offshore fund which is under the prudence of an Asset Management Company would have to make an application under Foreign Portfolio Investor Registration. The offshore fund would have to secure such registration within a period of 180 days.
Under the SEBI (FPI) regulations, 2019 any applicant would have to liaise with the Designated Depository Participant (DDP) for making such an application for foreign portfolio investor registration. A DDP is a person or an institution who has been approved by the board under Chapter III of the 2019 regulations. In order to consider different forms of registrations under FPI, the DDP would act as an intermediary between the applicant and the board.
Hence an applicant would have to satisfy the requirements of the DDP as well as the board for foreign portfolio investor registration.
Categories of Investment under Foreign Portfolio Investor Registration
Based on the amount of risk of foreign investment, there are three categories of investment under FPI registration. The following are the categories under FPI registration:
- Category I FPI
Usually this form would include investment in different forms of government institutions. This would include government institutions, sovereign wealth funds, international and central banks.
- Category II FPI
This category would include a pool of different forms of asset managers and pension funds. This will include asset management companies, investment funds, managers who maintain portfolio, banks, pension funds, and other funds which are regulated.
- Category III FPI
Any form of investors that are not covered under category I or category II FPI would come under this form of category. This would include HNI, individual investors, bonds which are held by families and corporate.
Benefits of Foreign Portfolio Investor Registration
The following are the benefits of foreign portfolio investor registration:
- Increase in Secondary Market
There would definitely be an increase in the secondary market. Secondary issues by different foreign institutions would provide a major boost to issue of shares.
- Exchange Rate Benefits
By registering as a foreign portfolio investor, there are also different forms of exchange rate benefits which can be enjoyed by this investor.
- More Competitive
As it is foreign investment, the overseas market would be open. This would be beneficial to foreign investors due to the amount of competition provided by the overseas market.
Minimum Eligibility Criteria for Foreign Portfolio Investor Registration
The DDP would decide the requirements for the applicant. After such requirements have been considered, then the certificate would be granted. The following eligibility criterion has to be sufficed by the applicant for foreign portfolio investor registration:
- Applicant must not be an Indian resident or a resident of India.
- The applicant must not also be an NRI or an OCI card holder. If the applicant falls under the above categories then he would not be eligible for this form of registration.
- Indian Resident, NRI or OCI can be eligible depending on the requirements of the board.
- The applicant must be in a foreign country who is member and signatory to the International Organization of Securities Commission’s Multilateral MOU. If the applicant is not this, then he must be a signatory of the Bilateral MOU with the board.
- The Central Bank of the applicant’s country must be a member of the Bank for International Settlements.
- 25% of more of the corpus must be provided by the applicant.
- The applicant must not have any sanctions as per the United Nations Security Council (UNSC).
- The applicant must not be a member of any grey listed member country of the Financial Action Task Force (FATF).
- The Applicant must also satisfy the category of the Fit and Proper person Test. This requirement would be as per Schedule II of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008.
- An applicant would also be eligible if he is a resident of the country under the International Financial Services Centre
Procedure for Securing Foreign Portfolio Investor Registration
The following procedure has to be utilized by the applicant to make an application for foreign portfolio investor registration:
- Fill up the First Schedule
An applicant considering to register as a foreign portfolio investor would have to first provide information as required under the first schedule under SEBI (FOREIGN PORTFOLIO INVESTORS) REGULATIONS, 2019. An applicant who wants to be registered as a FPI can also use the online method. The common application form from the NSDL website should be considered.
- Registration Fee
As per regulation 3 and regulation 7(3), the applicant must pay the prescribed fee for registering as a foreign portfolio investor. The following fee has to be paid for registration under prescribed categories:
• Category I$ 3000
• Category II US $300
Such registration fee has to be paid every block in three years. This would be required to be carried out till the validity of the registration.
Note: There are exemptions for particular institutions which include international banks and multilateral agencies which include the World Bank. These institutions which are exempt from payment of taxes to the central government would not require to pay the registration fees.
- Reviewing the application
The DDP would review the application for foreign portfolio investor registration. If there are no issues with respect to the application, then the DDP would provide the certificate of registration bearing the registration number. This number would be generated by the National Securities Depositories Limited (NSDL). The DDP must ensure to carry out the procedures related to application processing within 30 days. The DDP also has the authority to call for information on the application.
- Fee Collection
The DDP would collect the fee from the applicant in advance once in every three years. Once the fee is collected, the same would be remitted to the board. Such fee has to be remitted by 5th working day of every month. Along with this, details of the FPI must be mentioned in the prescribed format. However, the fee would only be remitted once the certificate of registration is granted to the applicant.
- Rejection of the Application
If the information provided in the application is misleading or does not confirm with the requirements, then such application would be rejected by the DDP. However, before rejecting the application, the DDP would provide an opportunity to the applicant to be heard. From the date of rejection of the application, the applicant has to make the communication for reconsideration of the application. This has to be carried out within 30 days from the communication.
Online Process of Foreign Portfolio Investor Registration
- The applicant can visit the following website.
- Here the ‘Common Application Form’ can be utilised by the applicant for FPI registration.
- This would be available under ‘User Registration Form’ which is available in the following link.
- A custodian can fill up the application form on behalf of the applicant.
- The DDP would then authorise the registration as an FPI. Once this process is carried out the applicant can access the Common Application Form through the NSDL FPI portal.
- Supporting documents can be uploaded through the portal. Along with this, copies of the documents should also be submitted in physical form to the DDP.
- All the pages of the application form must be signed by the FPI applicant before it is sent. Once the DDP reviews the application, a certificate would be granted.
- Then the application would be forwarded by the DDP to the Income Tax Department for generation of PAN. Once the PAN is generated the applicant would be intimated.
Suspension of Foreign Portfolio Investor registration Certificate
A certificate granted to a foreign portfolio investor can be cancelled for various reasons. The applicant would have to ensure to follow the code of conduct as per the Foreign Portfolio Investors Regulations. The following are the reasons for suspension of the certificate:
- Regulation 9(1) of the FPI regulation, 2019 states that an application would remain valid unless it is rejected by the DDP or suspended by the applicant.
- The provisions related to suspension of the certificate of registration would be carried out as per the requirements of the e Securities and Exchange Board of India (Intermediaries) Regulations, 2008.
- If the fee is not paid by the foreign portfolio investor, then such application would be deemed to be surrendered by the applicant.
- A certificate can be surrendered by a foreign portfolio investor. However, to carry out the above a request should be made.
Investment Restrictions under Foreign Investor Portfolio Registration
Foreign portfolio investors are only allowed to invest in particular securities. There are various investment restrictions for foreign portfolio investors. The following are the securities which can be invested in:
- Any form of securities, shares, debentures, warrants by a public limited company. A company which is listed its shares in a stock exchange would come under this provision.
- Any forms of unit schemes which are launched in accordance with the requirements of Securities and Exchange Board of India (Mutual Fund) Regulations, 1996.
- Any unit schemes which are launched in accordance with Securities and Exchange Board of India (Collective Investment Schemes) Regulations, 1999.
- Any form of units of real estate investment trust and infrastructure investments trusts.
- Indian Depository Receipts.
- Any form of securities and instruments which are issued by the Reserve Bank of India.
The following documents are required for Foreign Portfolio Investor Registration:
- Proof of Address of the Applicant- This would be required for both categories of investment which is category I as well as category II.
- Memorandum of Association
- Articles of Association
- PAN Card
- Resolution taken by the board of directors
- FATCA or the CRS Form
- KYC Details of the Directors
- Applicant must also submit a proof of identity- this can be the passport information
- List of Signatures must be provided by authorised signatories which would include the members/ shareholders
- Details of the beneficial owners of the company.
- Form 49 AA.