regulatory environment for fii in india

8/6/2019 Regulatory Environment for Fii in India

1/7

REGULATORY ENVIRONMENT FOR FII IN INDIA

FII registration and investment in India are mainly governed by SEBI (FII)

Regulations, 1995. Although, numerous changes have been made in these

regulations, over time.

WHO CAN BE REGISTERED AS AN FII? - ELIGIBILITY

In India, One who propse to invest their proprietary funds or on behalf of "broad

based" funds or of foreign corporates and individuals and belong to any of the

undergiven categories can be registered for FII.

Here, SEBI defines BroadBased Fund as, a fund established or incorporated

outside India, which has at least twenty investors with no single individualinvestor holding more than 10% shares or units of the fund.

Provided that if the fund has institutional investor(s) ,it shall not be necessary for

the fund to have twenty investors.

Provided further that, if the fund has an institutional investor holding more than

10% of shares or units in the fund, then the institutional investor must itself be

broad based fund.

Following entities / funds are eligible to get registered as FII:

1. Pension Funds

2. Mutual Funds3. Insurance Companies4. Investment Trusts5. Banks6. University Funds7. Endowments

8. Foundations9. Charitable Trusts / Charitable Societies


2/7

Further, following entities proposing to invest on behalf of broad based funds, are

also eligible to be registered as FIIs:

1. Asset Management Companies

2. Institutional Portfolio Managers3. Trustees4. Power of Attorney Holders

APPLICATION FOR BEING REGISTERED AS FII

An application for registration has to be made in Form A, the format of which is

provided in the SEBI(FII) Regulations, 1995 and submitted with under mentioned

documents in duplicate addressed to SEBI as well as to Reserve Bank of India (RBI)

and sent to the following address within 10 to 12 days of receipt of application.

This form is then submitted along with a fee of US $ 5000 payable through a

Demand Draft in favour of "Securities and Exchange Board of India" payable at New

York.

DOCUMENTS REQUIRED TO APPLY FOR FII REGISTERATION

y Application in Form A duly signed by the authorized signatory of theapplicant.

y Certified copy of the relevant clauses or articles of the Memorandum andArticles of Association or the agreement authorizing the applicant to invest

on behalf of its clients

y Audited financial statements and annual reports for the last one year ,provided that the period covered shall not be less than twelve months.

y A declaration by the applicant with registration number and otherparticulars in support of its registration or regulation by a Securities

Commission or Self Regulatory Organisation or any other appropriate

regulatory authority with whom the applicant is registered in its home

country.y A declaration by the applicant that it has entered into a custodian

agreement with a domestic custodian together with particulatrs of the

domestic custodian.

y A signed declaration statement that appears at the end of the Form.

y Declaration regarding fit & proper entity.


3/7

The eligibility criteria for applicant seeking FII registration

As per Regulation 6 of SEBI (FII) Regulations,1995, Foreign Institutional Investors are required to fulfill the following

conditions to qualify for grant of registration:

y The applicant should be regulated by an appropriate foreign regulatory authority in the same

capacity/category where registration is sought from SEBI. Registration with authorities, which are

responsible for incorporation, is not adequate to qualify as Foreign Institutional Investor.

y Applicant should have track record, professional competence, financial soundness, experience, general

reputation of fairness and integrity;y Applicant must be legally permitted to invest in securities outside the country or its in-corporation /

establishment.

y The applicant is required to have the permission under the provisions of the Foreign Exchange Management

Act, 1999 from the Reserve Bank of India.

y The applicant must be a "fit and proper" person.

y The applicant has to appoint a local custodian and enter into an agreement with the custodian. Besides it

also has to appoint a designated bank to route its transactions.y Payment of registration fee of US $ 5,000.00

The validity period for such a registration is 5 years. After expiry of 5 years, the registration needs

to be renewed by following the same procedure as illustrated above.

The procedure of registration of an FII can be comprehensively illustrated through

the following diagram.


4/7

Registration asasub-account

Sub-account includes those foreign corporates, foreign individuals, and institutions,

funds or portfolios established or incorporated outside India on whose behalf

investments are proposed to be made in India by a FII.

The following can get registered as sub accounts in india:


5/7

a. Institution or funds or portfolios established outside India, whetherincorporated or not.

b. Proprietary fund of FII.c. Foreign Corporatesd. Foreign Individuals

SEBI Regulations for being registered as a sub- account are:

1) The FII should apply on the behalf of the Sub-account. Both the FII and theSub-account are required to sign the Sub-account application form.

2) "Annexure B" to "Form A" (FII application form) needs to be filled by the subaccount

3) US $ 1,000 is to be submitted as the fee at the time of submitting theapplication through a Demand Draft in the name of "Securities and Exchange

Board of India" payable at New York4) OCBs / NRIs are not permitted to get registered as FII/sub-account

Financialinstrumentsavailable for FII investments

a. Securities in primary and secondary markets including shares,debentures and warrants of companies, unlisted, listed or to be listed on arecognized stock exchange in India;

b. Units of mutual funds;

c. Dated Government Securities;d. Derivatives traded on a recognized stock exchange;e. Commercial papersf. security receiptsg. Indian Depository Receipts

Investmentlimitson equityinvestments by FII/sub-account

Within the overall limit of 24% / 49 % / or the sectoral caps ; the following limits intoequity investments are prescribed by Government of India / Reserve Bank of India.

a. FII, on its own behalf, shall not invest in equity more than 10% of totalissued capital of an Indian company.

b. Investment on behalf of each sub-account shall not exceed 10% of totalissued capital of an India company.

c. For the sub-account registered under Foreign Companies/Individualcategory, the investment limit is fixed at 5% of issued capital.


6/7

Investmentlimitson debtinvestments by FII/sub-account

The FII investments in debt securities are governed by the policy if the Government ofIndia. Currently following limits are in effect:

Limits for FII investments in Government debt

Investment route Prescribed Limit100 % Debt Route US $ 1.55 billion70 : 30 Route US $ 200 million

Total Limit US $ 1.75 billion

Limit forinvestment in corporate debt; US $ 500 million.

Otherinvestmentlimits

Normal FII (70:30 Route) 100% Debt FII

Total investment in equity and equityrelated instruments shall not be less than

70% of aggregate of all investments.

100% investment shall be made in debtsecurity only.


7/7

regulatory environment for fii in india

Documents