Market experts foresee twin benefits from the liberalized regime for NRIs/OCIs, expecting an increase in genuine flows from overseas Indians and a potential attraction of more investments to the GIFT City. Sebi's conditions for increased NRI/OCI participation aim to balance flexibility with regulatory risk, with additional requirements on economic interest disclosure for FPIs and relaxation in investment limits for passive funds in sponsor’s firms for better index replication.
The Securities and Exchange Board of India (Sebi) has announced that non-resident Indians (NRIs) can now own up to 100 per cent in global funds at the GIFT City, in a move aimed at potentially attracting more investments from the Indian diaspora into the domestic stocks. Simultaneously, passive funds have been granted increased exposure to group companies, with new provisions allowing them to exceed the previous 25 per cent limit in sponsor firms, subject to specific conditions and an overall cap of 35 per cent investment.
The new regulations by Sebi aim to create a more liberalized regime for NRIs and Overseas Citizens of India (OCIs), possibly leading to increased flows from overseas Indians and strengthening the fund ecosystem at the GIFT City. The revised rules specify that NRIs and OCIs can now own up to 100 per cent in global funds, provided the foreign portfolio investor (FPI) submits PAN card copies of all NRI/OCI constituents and their economic interest details.
These changes are significant as they not only open up opportunities for NRIs/OCIs to have greater exposure in global funds at the GIFT City but also aim to prevent the misuse of the NRI route to bypass regulatory requirements like the 25 per cent minimum public shareholding rule. Additionally, the allowance for mutual fund schemes to invest up to 35 per cent of their NAV in group companies of the sponsor, particularly for passive funds, is intended to improve index replication without exceeding the specified caps.
Sebi's focus on enhanced disclosure norms, economic interest reporting, and regulatory compliance aligns with the objective of managing risks and preventing market abuses like front-running and insider trading within the asset management industry. The requirement for fund houses to establish institutional mechanisms to deter such practices and the regulator's emphasis on whistleblower mechanisms signal a shift towards greater surveillance and accountability within the sector, with the intention of promoting transparency and integrity in market operations.