SEBI amends FPI rules to boost ease of business for IFSC funds

The Securities and Exchange Board of India (SEBI) has approved a series of amendments to the SEBI (Foreign Portfolio Investors) Regulations, 2019, aimed at simplifying compliance and improving the ease of doing business for Foreign Portfolio Investors (FPIs) operating from International Financial Services Centres (IFSCs).

One of the most notable changes is the extension of FPI registration eligibility to retail schemes in IFSCs with resident Indian sponsors or managers. Until now, only Alternative Investment Funds (AIFs) in IFSCs backed by Indian sponsors or managers were allowed to register as FPIs. This expansion is expected to provide more flexibility for fund managers and encourage greater participation in global capital flows through IFSC platforms.

At present, FPIs enter India through multiple routes depending on the investor type, investment structure, and investee category — each requiring separate documentation and compliance. While these routes will remain, SEBI’s proposed unified automatic window will streamline the process by offering a single registration framework across all avenues.

These measures will benefit major global investors such as Singapore’s GIC, Abu Dhabi’s ADIA, Norway’s pension fund, Canada’s CPPIB, and public retail funds like Goldman Sachs and Morgan Stanley. Collectively, these entities manage investments worth over Rs 80 lakh crore in India.

The development comes against the backdrop of FPIs turning cautious on Indian equities amid global uncertainties and tariff-related pressures. By simplifying entry and easing compliance requirements, SEBI aims to boost India’s appeal as an investment hub and reinforce its standing as one of the world’s top IPO and equity markets. Notably, FPIs have offloaded shares worth over Rs 80,000 crore since July.

Another key decision addresses the long-standing issue of mismatched sponsor contribution limits between SEBI and the International Financial Services Centres Authority (IFSCA). Earlier, the two regulators had set different thresholds, creating confusion and raising the risk of inadvertent non-compliance by funds. The SEBI board has now approved amendments to align these rules by capping sponsor contributions from resident Indian non-individuals to a maximum of 10% of the fund’s corpus (or Assets Under Management, in the case of retail schemes). This move is expected to bring consistency, reduce compliance risks, and provide clarity for fund structures set up in IFSCs.

Key highlights of SEBI’s amendments:

Retail schemes in IFSCs with Indian sponsors/managers can now register as FPIs, expanding beyond AIFs.

Sponsor contributions aligned with IFSCA norms – capped at 10% of the fund’s corpus (or AUM in case of retail schemes).

Operationalization of Indian MF investments in overseas funds – overseas MFs/UTs can register as FPIs and include Indian mutual funds as constituents.

By aligning regulations with IFSCA and expanding FPI access, SEBI aims to create a more robust and predictable compliance environment, making IFSCs more attractive for global capital. Industry experts believe these reforms will not only reduce regulatory friction but also enhance India’s position as a competitive hub for international finance.

SEBI has also moved to operationalise its earlier framework allowing Indian mutual funds to invest in overseas funds. In its circular dated November 4, 2024, the regulator permitted Indian mutual fund schemes to invest in overseas Mutual Funds or Unit Trusts (MFs/UTs) that have exposure to Indian securities, subject to certain safeguards. Building on this, SEBI has approved amendments enabling overseas MFs/UTs registering as FPIs to include Indian mutual funds as constituents, provided they comply with the conditions laid out in the November circular. This step is expected to open up additional avenues for Indian mutual funds to diversify investments and participate more meaningfully in global markets.