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SEBI has eased restrictions on investments made via non-FATF nations


To encourage international investors to engage in Indian equities, the Securities and Exchange Board of India (Sebi) has eased its regulations for foreign portfolio investors (FPIs).

In nations where the Financial Action Task Force (FATF) is not a member, investors from such countries may nevertheless be eligible for registration.

Experts believe that the decision will benefit money and investments from Mauritius and West Asia, as well as from other nations and that it will improve the flow of funds and investments into India.

In September of last year, the Securities and Exchange Commission reclassified three categories into two: Category-I and Category-II. Compliance load reduced Know Your Customer (KYC) regulations and paperwork and fewer investment limits are some of the benefits of being in Category I. Such investors are exempt from indirect transfer restrictions when they subscribe and issue offshore derivative instruments.

Ease Of Restrictions

Previously, fewer than 3% of FPIs were classified as Category-I, while more than 45% were classified as Category-II. Approximately 13% of the funds were deemed to be of Category III status. To be eligible for Category-I designation, nations must be members of the Financial Action Task Force (FATF).” Indirect share transfer restrictions, like it’s shown here, would be exempted for FPIs from such nations, according to Rajesh Gandhi, a partner at Deloitte India. “This will stimulate inflows into India, notably from India-focused funds, together with the MSCI index revision.”

Mauritius and West Asian nations, according to experts, may now try to be on the Indian government’s list of designated countries.

Non-FATF nations and territories, such as Dubai, Cayman Islands, and Mauritius, would seek an exception from the Government of India because of the greater acceptance of Category-I FPI funds by investors, said Neha Malviya, director, Wilson Financial Services.

Mauritius, the Cayman Islands, Cyprus, and the British Virgin Islands all fall under Category-II of the International Financial Reporting Standards. FPI money continues to flow into Mauritius even after its treaty modification with India.

Category I registration will be available to nations that have been alerted by the FATF, which is a first.” Sunil Gidwani, a partner at Nangia Andersen, cited Mauritius, Cayman Islands, and Indonesia as notable non-FATF member nations for secondary investment in Indian stock markets.

According to Gidwani, achieving Category-I status would open their doors to new investors and provide FPIs more operational freedom . It is significantly simpler to enter the Indian market when you are registered as Category-I FPIs since there is less due diligence and paperwork required. It will not be necessary for them to comply with the offshore transfer tax laws since they may issue P-notes to foreign investors.

After a law change was implemented in 2012, the Indian government made it possible for Indians who transferred shares or interests in an entity outside of India to be taxed in India, provided that such shares or interests derived their value (directly or indirectly) substantially from assets in India. Indirect transfer clauses were used to describe these rules.