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The Securities Exchange Board of India (SEBI) has permitted Alternative Investment Funds (AIF) to be set up in International Financial Services Centre (IFSC) as Foreign Portfolio Investors (FPIs) to make investments in securities listed on Indian stock exchanges or in specific listed or unlisted corporate debt securities of Indian companies. This was done so because entities set up in IFSCs are considered as ‘non-residents’ for the purpose of Indian Foreign Exchange Regulations and the restrictions placed by SEBI and Reserve Bank of India (RBI) on the participation of Indian residents in FPIs are by default applicable to AIFs in IFSC. Considering the fact that the managers/sponsors are resident Indian entities, they are required to make mandatory sponsor commitment to AIF as prescribed under the SEBI (AIF) Regulations, 2012. So it becomes important to keep a check that the restrictions on residents do not collide with the mandatory sponsor commitment requirement under SEBI (AIF) Regulations, 2012 applicable to AIFs in IFSC.
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Proviso 2 to Regulation 4 (c) of the SEBI (FPI) Regulations, 2019 which was inserted by way of amendment to the regulations in 2021 w.e.f. 26.10.2021 provides that resident Indians except an Individual may apply for registration in the following conditions, namely:-
In summation, amendment to the SEBI (FPI) Regulations aligns the SEBI (FPI) Regulations, 2019 with the RBI Circular to permit AIFs in IFSCs subject to mandatory sponsor contribution from the resident manager or sponsor entities for registration as FPIs. Furthermore, the following points must be kept in mind for registration: i) permission for the ‘automatic route’ is available only for the resident Indian entities to the extent of mandatory sponsor commitment ii) mandatory sponsor commitment by an Indian party to AIFs in IFSC under the ‘automatic route’ should be as per the prescribed RBI Circular.
Also Read:SEBI Allowed Participation of AIFs in Credit Default SwapSEBI Issues Guidelines for AIFs for Declaration of First Close of Scheme
Ankita is an Advocate and has joined Enterslice as a Legal Researcher. Her work focuses on General Civil and Commercial laws, Corporate Taxation Laws, Labour and Employment Laws and Dispute Resolution. She is a law graduate from School of Law, University of Petroleum and Energy Studies. Prior to joining Enterslice, Ankita has the experience of practicing law in Delhi and Odisha.
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