NRI-FPIs lobby to hang on to Dalal Street party | Economic Times

Mumbai: India-dedicated offshore funds formed with non-resident Indian (NRI) money, don’t want to leave the Dalal Street party just yet.These foreign portfolio investors (FPIs) are reaching out to local institutions and hiring legal firms and consultants to lobby with the government and the capital market regulator to change a rule that could put many of them out of business after December 31, 2020.A year ago, the Securities & Exchange Board of India (Sebi) told FPIs to lower the aggregate contribution of NRIs and overseas citizens of India (OCI) in a fund to below 50%, and single contribution by an NRI/OCI to less than 25% by end of the year. But with the pandemic impacting fundraising activity, most FPIs with predominant NRI/OCI investments are unable to comply with the regulation.Fund officials representing these offshore investors are knocking on the doors of the finance ministry and Sebi to put across their point. Most of these FPIs not only want Sebi to push back the December 31 deadline by at least a year but would also request the regulator and government to change the rule. “NRIs have a deeper appreciation for Indian risk. The capital they bring in maybe comparatively more patient and long term. Thus to limit their level of participation is counterproductive,” said Richie Sancheti, Head of Investment Funds, Algo Legal.FPIs, with majority NRI money, are typically set up by Indian financial services groups and AMCs which sell the India story to the Indian diaspora comprising persons of Indian origin (PIO) and overseas citizens of India, (OCI). (Unlike NRIs who hold Indian passports, PIOs and individuals who have obtained the OCI card from the Indian government are citizens of other countries.)“The 25% /50% restriction will apply to existing FPIs as well as to a fund based in the IFSC. Many of the India-focused FPIs would either want an extension or a complete waiver of the restriction. The proposed merger of the NRI-PIS (portfolio investment scheme) and FPI routes makes a case for allowing 100% NRI investment in FPIs,” said Rajesh H Gandhi, partner, Deloitte India. While there may not be any hurdles in allowing predominant NRI funds in FPIs once the two routes are merged, no decision has been arrived on the subject.79237722The 25% /50% rule is understood to emanate from concerns about fund round-tripping and money laundering. But such a norm, according to Tejesh Chitlangi, senior partner at IC Universal Legal, is unwarranted not only from a business perspective but also from a legal-regulatory standpoint. “For instance, NRIs can participate up to 100% in the corpus of a Sebi-regulated Category III alternative investment fund (AIF) in India which can make investments in Indian listed securities in an even more unrestricted manner than FPIs,” said Chitlangi.Significantly, subject to certain conditions, Sebi has allowed resident Indians to invest in FPIs by remitting funds under RBI’s liberalised remittance scheme (LRS). “Not many have used this route as they are unsure how it would be viewed by RBI which had pulled up Indian investors buying shares of overseas companies that have investments in India. But the broader point is if residents can invest in FPIs, why can’t NRIs dominate an FPI? If necessary, the anti-money laundering rules can be tightened to disclose the ultimate beneficial owners corresponding to a larger number of investors,” said a custodian official. “Also, a person laundering money can use any FPI, and not NRI dominated FPIs,” he said.While investment opportunities available to NRIs/OCIs are more than what are offered to foreigners, NRI/OCIs are discouraged to invest through the FPI route. Instead, regulators want the PIS to be the preferred route for investment for NRIs trading on stock exchanges or investing in MFs. However, most NRI/OCIs would rather prefer the FPI route due to the flexibility it offers.