Sebi recommends easing rules for foreign investors

Portfolio investment limit mooted at 24%

 A committee set up by the Securities and Exchange Board of India (Sebi) has recommended merging foreign investment in India's stock markets into a single investor class as well easing registration norms for foreign buyers, in a move aimed at appeasing foreign investors.

Besides, the committee headed by former Cabinet Secretary K M Chandrasekhar, also suggested that Know Your Client (KYC) rules should be based on the risk profile of investors.

"With the simplification of procedures in KYC/ Account opening and onboarding etc., the Committee believes it will make the experience for FPI of entering into India more pleasuresome and smooth, resulting in increasing inflows into India," Sebi said in a statement.

In a move to make the procedure much simpler, the committee recommended that prior direct registration of FIIs and Sub Accounts with Sebi should be done away with, Sebi said. Instead, the new class of investors (FPIs) should be allowed to register themselves with Designated Depository Participants (DDPs).

The Sebi committee also recommended merging the existing categories of Foreign Institutional Investors (FIIs), their sub accounts and Qualified Foreign Investors into the Foreign Portfolio Investor (FPI) class.

The panel also recommended opening up more sectors in India to receive venture capital funding from investors abroad.

Besides Chandrasekhar, other committee members include representatives from the government, RBI and market participants.

As per the committee, the aggregate investment limit for FPI should be at 24 per cent and the limit can be relaxed depending on individual sectoral caps. Meanwhile, investments from Non Resident Indians (NRIs) and Foreign Venture Capital Investors (FVCIs) should remain as separate classes.

The panel has suggested that the "present list of nine sectors should be considerably expanded" for FVCIs.

"Alternately a negative list may be announced by Government of India so that rest of the sectors are opened for VCF activity," it added.

According to the panel, the risk profile of overseas investors should be classified into three types -- low risk, moderate risk and high risk.

"The approach to KYC will be risk based. The documents needed for registration and onboarding would be the simplest for Category I (low risk) and the most stringent for Category III (high risk)," the release said.

Further, the panel has said that submission of personal identification documents should be done away with for investors coming under low and moderate risk categories.

With regard to issuance of Offshore Derivative Instruments (ODIs)/Participatory Notes (PN) the panel said that high risk entities should not be allowed to issue such instruments.