The Securities Exchange Board of India has issued a notification dated 13th December, 2018 to provide a clarification on clubbing of investment limits of foreign Government / foreign Government related entities.
Key Highlights:
- It clarifies that Clubbing of investment limit for FPIs will be on the basis of common ownership of more than 50% or based on common control.
However, clubbing of investment limit of FPIs having common control shall not be done in case of:
(a) FPIs which are appropriately regulated public retail funds or
(b) FPIs which are public retail funds majority owned by appropriately regulated public retail funds on look through basis or
(c) FPIs which are public retail funds and investment managers (IMs) of such FPIs are appropriately regulated
It further provides an explanation to the clarification:
- Public retail funds mean
- mutual funds or unit trusts which are open for subscription to retail investors and do not have specific investor type requirements e.g. accredited investors etc,
- Insurance companies where segregated portfolio with one to one correlation with a single investor is not maintained and
- Pension funds.
2. Control includes the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by shareholding or management rights or shareholders agreements or voting agreements or in any other manner.
- In case, two or more FPIs including foreign Governments/ their related entities are having direct or indirect common ownership of more than 50% or control all such FPIs will be treated as forming part of an investor group and the investment limits of all such entities shall be clubbed at the investment limit as applicable to a single foreign portfolio investor.
- The investment by foreign Government agencies shall be clubbed with the investment by the foreign Government/ its related entities for calculation of 10% limit for FPI investments in a single company, if they form part of an investor group.
- In respect of any breach of the investment limit mentioned above, the FPI’s will
have the following two options:
- FPI in breach will have to divest its holding within five trading days from the date of settlement of the trades to bring its shareholding below 10% of the paid-up capital of the company, or,
- The investments must be treated as Foreign Direct Investment from the date of breach.
Source: Securities and Exchange Board of India
