SEBI Circular

SEBI Eases Registration Process for Foreign Portfolio Investors

SEBI (Securities and Exchange Board of India), the regulator of India’s financial markets, has introduced a new and easier way to register and start investing in India for Foreign Portfolio Investors (FPIs). This simplification of the process for registering Foreign Portfolio Investors (FPIs) is a way to attract global capital and make the Indian financial markets accessible to all interested international investors. 

Foreign Portfolio Investors help in the development of the financial landscape of India as they have capital, liquidity, and expertise to provide by investing in Indian securities such as stocks, bonds, and derivatives. Recognizing the importance of Foreign Portfolio Investors, the ongoing efforts of SEBI can be seen to ease the process of registering and operating as an FPI, which includes the recent circular notified by SEBI dated 12th November 2024.

Background of Foreign Portfolio Investors in India

The history of FPI in India can be traced back to 1992, after a financial crisis in the country. This was a move to stabilize and grow the economy. Since then, FPI has gained huge importance in the financial market. Today, India is very near to being one of the most preferred destinations for portfolio investors in the coming days.

Realizing the complexity of the process of registration for Foreign Portfolio Investors, SEBI gradually introduced measures to simplify and streamline the registration process, of which the recent circular notified by SEBI is a part. The process initially was burdensome, involving several layers of regulatory approvals, documentation, and compliance checks.

A Step Toward Simplification

Explanation of the Notified Circular Dated 12th November 2024:  

The circular notified by the SEBI aims to make the process of registration of Foreign Portfolio Investors easier, for the foreign investors having some information pre-registered in the system.

Issues

The main issue is the process for FPI Registration. To apply for investment in India as an FPI, it is required to fill out a long and detailed application form called the Common Application Form (CAF) which asks for a lot of personal information and investment-related information. Filling out the same information repeatedly feels tiring and time-consuming, especially in cases where you already have much of this information stored in the system (from previous applications or other regulatory processes).

Depositories, Custodians, and Designated Depository Participants have pointed out that certain FPIs who have information stored about their Investment Managers (IMs) or any associated funds are not required to fill out the entire form. Moreover, when the system has all the information saved, repeating them creates duplication and waste of time. This causes more delays and complications than necessary.     

Simplified Process

Recognizing the importance of Foreign Portfolio Investors and the need for an easier process of registration of FPI, SEBI has put up two options:

• A Full CAF Form– This is a form that is the same as the old Common Application Form where all the details need to be filled manually again.
• An Abridged Form- This is a shorter version of the form with only the necessary information that is specific to the applicant.

If the applicant falls into certain categories given below, they would not be required to fill out the whole application form;

• Funds managed by an already registered Investment Manager (IM).
• Sub-funds or specific classes of a master fund that’s already registered.
• Insurance schemes where the parent company is already registered as an FPI.

The applicant can only provide new or specific information. Other required information about their investment will be automatically filled in through the system itself. This will make the process faster and easier.

How it Works?

• When an applicant goes for an abridged form, all the common and known details about their Investment Manager or any associated funds, like; their name, address, or registration details, get automatically filled in based on the stored information. The fields not requiring any changes will be disabled for editing. The information about new funds or new managers in the FPI’s portfolio will need to be manually entered.
• The applicant will need to give their consent to use this pre-filled data and confirm that it’s correct.
• Applicant once needs to verify that all the pre-filled information is correct and up to date to make sure it doesn’t need any changes. 
• Designated Depository Participants (DDPs) will update the system with any new details and also save them for future use making the process quicker and easier.

Responsible Authorities

In the world of finance, details like your personal information, investment data, and transaction records need to be secured very carefully. To make sure the investment process is secure, accurate, and efficient following bodies are responsible; 

• Designated Depository Participants (DDPs)- Designated Depository Participants manage and store the data of an investor. They are authorized to ensure the accuracy of the information provided by Foreign Portfolio Investors (FPIs) which includes both the automatically filled-in data and manually filled data.
• Custodians and Designated Depository Participants Standards Setting Forum (CDSSF)- The CDSSF includes Custodians and DDPsin coordination with SEBI, which sets up guidelines and standards for how auto-populated fields and the whole process should work. 

These two bodies together are responsible for ensuring accuracy, reducing manual work, and making the whole investment process easier and more efficient for everybody involved in the investment.

A Glimpse of the Timeline

The change will come into effect in three months from the date of the official notification announcement of the circular by SEBI, which is around February 2025. This provides a little time to adjust to the new system. 

Regulatory Empowerment

The circular issued regarding simplifying the registration process for Foreign Portfolio Investors is based on legal powers conferred to SEBI under two important laws:

• Section 11(1) of the SEBI Act, 1992: This section provides SEBI the authority to take actions to protect investors and ensure the development and regulation of the securities market in India. 
• Regulations 3(2) and 44 of SEBI (Foreign Portfolio Investors) Regulations, 2019: These are rules specifically related to Foreign Portfolio Investors (FPIs)—investors who are based outside India but invest in Indian markets. The regulations are designed to govern how foreign investors participate in India’s securities market.

Benefits of Simplified Registration Process for FPIs

The Simplified Registration Process for Foreign Portfolio Investors will have a lot of positive impact on the financial landscape of the Indian market. Below are listed some of them;

Increased FPI Inflows- An easy registration process will lead to an increase in FPI participation in Indian markets. With reduced hurdles, foreign investors are more likely to allocate capital to India.

Convenience and Accuracy- Not taking a whole lot of time to get registered, becomes convenient to investors, and auto-filling reduces the chances of errors, ensuring accuracy.

Enhanced Market Liquidity– Increased FPIs entering the Indian market also increases market efficiency and liquidity. When the process gets easy it increases the number of active trades in the market. This attracts a broader range of investors, from large pension funds to smaller hedge funds.

Encouragement of Long-Term Investments- A streamlined process is a way to open the door for diverse investors, attracting more long-term, stable foreign investors who might have been deterred by procedure complexities in the past.

Economic Growth-As more capital flows into India, it benefits India’s trade and balance of payments directly boosting the economic growth of the country.

Increased Access to Capital- Companies need capital to grow and thrive in the market. Not all of them have enough sources. Here, FPIs come to the rescue. When FPIs invest, they bring in extra money that helps businesses grow.

Example of Foreign Portfolio Investment Inflow

Today, foreign investors are showing a lot of interest in India. If this continues this way, India is very near to being one of the best preference destinations for portfolio investors.

Investor Countries- According to the report of SEBI in March 2024, the US has the most investors in India currently with over 3,400 FPIs registered.  

Interest in India- Along with the stocks, foreign portfolio investors are also interested in buying the bonds. The investment in buying the Indian bonds in 2024 was $13.1 billion (about ₹1.1 lakh crore), making it the second year in a row of being net buyers. 

Equity Inflows- After the highest investment amount at the end of June 2023, the foreign investors invested about $10 billion (over Rs,87,000) in the first quarter of 2024, making it higher than the previous quarter ending of 2023.

To Wrap Up

SEBI’s decision to simplify the registration process for Foreign Portfolio Investors marks a significant step in the evolution of India’s financial markets. This is a win-win situation for both the Foreign Investors and India`s economy. SEBI has addressed many of the challenges by making it easier for foreign investors to enter the market. This is a key initiative to ensure that India remains competitive in the global investment landscape.

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