FPIs: Sebi puts on hold exemption pleas of some FPIs

Mumbai: The capital market regulator has put on hold pending applications by foreign portfolio investors (FPIs) for exemption from granular disclosures.

The decision, driven by a few considerations, was communicated by the Securities & Exchange Board of India (SEBI) in a January 24 email to the fund custodians – banks and institutions who keep custody of securities and act as bookkeepers of the FPIs – three persons aware of the matter told ET.

The move may affect a few dozen funds, structured as ‘pooled investment vehicles’ (PIVs), from Cayman Islands, Mauritius and some other jurisdictions, but is unlikely to have any significant impact on the market as the amount involved is said to be very small. Besides, exemptions which have already been given would not be withdrawn and more funds may receive exemption till March 11, by when some of the issues may be addressed.

Under the disclosure rules, introduced in 2023 in the wake of the US short-seller Hindenburg’s allegations against the Adani Group, an FPI has to reveal the ultimate beneficial ownership of every investor in the fund, down to the last natural persons, when over 50% of the fund’s India equity assets under management (AUM) is comprised of stocks of a single corporate group; or, when the Indian AUM of an FPI exceeds ₹25,000 crore.

Among FPIs exempted from the disclosure requirement are sovereign wealth funds and public retail funds (PRF), as well as regulated PIVs whose exposure to an Indian business group and to the Indian equity market is below 25% and 50% respectively of its global AUM.


A PIV, seeking exemption, must have a ‘blind pool’ structure, with no segregation of investors, and have an investment manager independent from the fund. Besides, it should be regulated with some requirement for filing documents with the regulator. The custodians have to verify these features and the global AUM of FPIs from the regulatory filings like the ‘private placement memorandum’ (PPM) available on the websites of the funds’ respective home country regulators. In case these details and the PPM are not available on the regulator’s website, FPIs have to produce certified copies of the filings from the regulator.While no official confirmation is available, it is believed that SEBI’s recent decision may have emanated from the following observations and possibilities:

Reluctance of offshore regulators to provide such a certification.

In jurisdictions where pooling and pari passu investor rights by themselves are not mandatory regulatory requirements, a fund (hypothetically) may later amend the PPM to remove the need for pooling/pari passu. Such changes may not be objected to by the fund’s regulator as it does not insist on conditions like blind pooling in the first place.

Thirdly, the regulator may be exploring a possible relook at the exemption conditions for PIVs which fulfil criteria like pooling, pari passu (no segregation), filing, and independent fund manager but the fund PPMs (demonstrating these features) are not available on the regulator’s website. In such a situation, the regulator may examine whether cases can be covered under the broader exemption allowed for PRFs like mutual funds. If Sebi finally does this, it would mean a degree of easing of the exemption rule for such PIVs.

A predominant number of exemptions (from the disclosure rules) have been extended to public funds like mutual funds and pension funds, along with sovereign wealth funds and those of government related investors. FPIs which breached the threshold exposure levels had to realign their portfolios or prune exposure by January 29, failing which they have to disclose their investor details by March 11. However, funds receiving exemption by March 11 would not have to make the additional disclosures.

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