SEBI Amends FPI Rules for Resident Indian Investors

The Securities and Exchange Board of India (SEBI) has amended its Foreign Portfolio Investors (FPI) Regulations, 2019, to broaden the participation of resident Indians in FPIs based in International Financial Services Centres (IFSCs). The key changes, following public consultation and committee deliberations, include enabling retail schemes in IFSCs with resident Indian non-individuals as sponsors or managers to register as FPIs, a facility previously only available to AIF schemes. The new rules also align the contribution limits for resident Indian non-individuals, allowing them to contribute up to 10% of a fund’s corpus, an increase from the previous 5% cap, to match the limits set by the IFSCA (Fund Management) Regulations, 2025. Furthermore, the amendments permit Indian Mutual Funds to become constituents of FPIs, extending a provision already available to resident individuals. This change facilitates the operationalization of a prior SEBI circular that allows Indian MFs to invest in overseas MFs with exposure to Indian securities, subject to specific conditions. Overall, these adjustments aim to streamline and enhance the participation of resident Indians in FPIs within the IFSC framework.

Securities and Exchange Board of India

Amendments to SEBI (Foreign Portfolio Investors) Regulations, 2019: Contribution by Resident Indians in Foreign Portfolio Investors (FPIs) based in International Financial Services Centres (IFSCs)

1. Objective

1.1. This Board Memorandum seeks approval of the Board for amending the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2019 (hereinafter referred to as ‘FPI Regulations’) on the following proposals aimed at facilitating participation by resident Indians in FPIs:

1.1.1. To enable retail schemes in IFSCs with resident Indian non-individuals as sponsor/ manager to register as FPIs. Note that AIF schemes in IFSCs with resident Indian non-individuals as sponsor/ manager are already allowed to register as FPIs.

1.1.2. To align the contribution limits under FPI Regulations with IFSCA (Fund Management) Regulations, 2025 (hereinafter referred to as ‘IFSCA (FM) Regulations, 2025’) for resident Indian non-individuals in funds setup in IFSCs.

1.1.3. To allow Indian Mutual Funds to be constituents of FPIs, extending the facility already available to Resident Individuals.

2. Background

2.1. In terms of FPI Regulations, non-resident Indians (NRI), overseas citizens of India (OCI) and resident Indians are not eligible to register as FPIs. However, NRIs, OCIs or resident Indian individuals are permitted to be constituents of FPIs, subject to certain conditions in terms of limits on contribution and control of the FPIs.

2.2. Further, resident Indian non-individuals are permitted to be constituents of an FPI, subject to certain conditions and investment limits summarised as under: 2.2.1. FPI being an eligible investment fund as provided under sub-section (3) of section 9A of the Income Tax Act, 1961 which has been granted approval under the Income Tax Rules, 1962, and resident Indian being an eligible fund manager of the FPI, as provided under sub-section (4) of section 9A of the Income Tax Act, 1961.

2.2.2. FPI being an Alternative Investment Fund (AIF) setup in IFSC and regulated by International Financial Services Centres Authority (IFSCA), and its sponsor/manager being a resident Indian contributing up to:

i. 5% of the corpus of AIF or US $ 7,50,000 (whichever is lower) in case of Category I & II AIF, or

ii. 5% of the corpus of AIF or US $ 1.5 million (whichever is lower) in case of Category III AIF.

2.2.3. FPI being controlled by an Investment Manager which is controlled and/ or owned by NRI or OCI or resident Indian, and such Investment Manager being incorporated or setup under the Indian laws and appropriately registered with SEBI.

2.3. The provision enabling resident Indian non-individuals to be constituents of FPI, as provided in Para 2.2.2 above, was incorporated in 2021 to facilitate the growth and functioning of the AIFs set up/ proposed to be set up in IFSC.

2.4. Separately, in order to facilitate ease of investment in overseas Mutual Funds (MF)/ Unit Trusts (UTs) and to bring transparency in the manner of investment, SEBI, vide circular dated November 04, 2024 enabled Mutual Funds to diversify their overseas investments, including into global MFs/ UTs.

3. Public consultation and deliberations in FPI Advisory Committee

3.1. Based on requests received from IFSCA and the need to align FPI Regulations with norms specified by SEBI for Mutual Funds investing in overseas funds, the proposals mentioned in para 1 were discussed in SEBI’s FPI Advisory Committee (“the Committee”), in its meeting held on August 07, 2025 and to solicit public comments, a Consultation Paper was issued by SEBI on August 08, 2025. The same is placed at Annexure A.

3.2. 36 comments were received on the aforesaid consultation paper from members of the public (including DDPs, Custodians, law firms, Global Custodians, Chartered Accountants). A summary of the public response to the proposals is placed at Annexure B.

3.3. Comments were also received from the Reserve Bank of India (RBI) and the same are discussed in the ensuing paragraphs at the respective proposals.

4. Proposals

Based on the comments received from the Committee, RBI and market participants, the following are being proposed to enhance the scope of participation by resident Indians in FPIs:

4.1. Enabling registration of Retail Schemes based in IFSCs with resident Indian non-individuals as Sponsor/ Manager as FPIs Issues under consideration

4.1.1. IFSCA (FM) Regulations, 2025 defines ‘scheme’ or ‘fund’ as a scheme of a Fund Management Entity (FME) launched under these regulations. Under Chapter III of IFSCA (FM) Regulations, 2025, following types of schemes for fund management have been provided for:

i. Venture Capital Schemes (filed with the IFSCA as “venture capital fund” under Category I AIF)

ii. Restricted Schemes (Non-Retail Schemes) (filed with the IFSCA as Category I, II or III AIF)

iii. Retail Schemes

iv. Special Situation Funds (considered as a category under restricted schemes; filed with the IFSCA as Category I AIF)

4.1.2. IFSCA has requested that in addition to AIFs with resident Indian non-individual sponsor/ manager that are already permitted to register as FPI, retail schemes with resident Indian non-individual sponsor/ manager may also be enabled to register as FPI.

4.1.3. IFSCA (FM) Regulations, 2025 define “Retail scheme” as a scheme offered to all or a section of the investors for subscription, with no ceiling as to the number of investors in the scheme. These regulations also require the FME or its associate to invest at least 1% of the Assets under Management (AUM) of the retail scheme or USD 2,00,000, whichever is lower. This is similar to mutual funds in the Indian context, wherein SEBI (Mutual Fund) Regulations, 1996 require Asset Management Companies (AMCs) to maintain “skin in the game” by contributing to schemes of mutual funds.

4.1.4. Further, in terms of IFSCA (FM) Regulations, 2025, retail schemes are required to have at least 20 investors with no single investor contributing more than 25% in a scheme. Also, in general, a retail scheme cannot invest more than 10% of its AUM in securities of a single company.

4.1.5. Note that presently resident Indian individuals are permitted to be constituents of an FPI (with contribution less than 25% individually and less than 50% on an aggregate basis, along with NRIs/ OCIs, of the corpus), subject to condition that the contribution is made through the Liberalised Remittance Scheme and in global funds whose India exposure is less than fifty percent. Further, resident Indian individuals (along with NRIs/ OCIs) can contribute even up to 100% of the corpus of certain IFSC based FPIs, including funds that are akin to mutual fund structures, subject to certain terms and conditions.

4.1.6. In view of the above and in line with the extant provisions in respect of AIFs based in IFSCs in India, the request made by IFSCA to enable retail schemes in IFSCs with resident Indian non-individuals as sponsor/ manager to register as FPIs merits consideration.

Stakeholders’ views

4.1.7. The Committee deliberated and concurred with the proposal.

4.1.8. A total of 7 comments were received on this proposal and all the comments are in favor (strongly agree, agree) of the proposal. Thus, it is seen from the comments that the proposal has received overall positive feedback from the public.

4.1.9. Further, RBI has stated that they have no-objection to the proposal, provided that the entire funds invested in India as FPIs do not directly or indirectly originate from India. In this regard, it may be noted that currently, FPI Regulations permit a resident Indian non-individual to be constituent of an FPI that invests in India, subject to certain conditions as stated at Para 2.2 above. The instant proposal is an extension of the same.

Proposal

4.1.10. In view of the same and considering the request received from IFSCA, it is proposed to enable retail schemes based in IFSCs in India with resident Indian non-individuals as sponsor/ manager to register as FPIs.

4.2. Alignment of limits on contribution by resident Indian non-individual  sponsor/manager

Issue under consideration

4.2.1. Prior to notification of the IFSCA (FM) Regulations, 2022, AIFs in IFSCs were governed under Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012 (hereinafter referred to as ‘SEBI (AIF) Regulations’), which prescribed minimum threshold for sponsor contributions, but no maximum limit. However, IFSCA (FM) Regulations, 2022 introduced both minimum and maximum threshold for contribution by FME/its associate. The same provisions continue in the IFSCA (FM) Regulations, 2025.

4.2.2. In terms of IFSCA (FM) Regulations, 2025, skin in the game requirements for FME or its associate to AIFs and retail scheme are as under:

4.2.2.1. AIFs set up as venture capital schemes:

i. Minimum: Lower of (2.5% of the targeted corpus or USD 7,50,000);

Cap: 10% of the targeted corpus.

4.2.2.2. AIFs set up as restricted schemes:

i. In case of a close ended scheme:

Minimum: Lower of (2.5% of the targeted corpus or USD 7,50,000);

Cap: 10% of the targeted corpus.

ii. In case of an open-ended scheme:

Minimum: Lower of (5% of the targeted corpus or USD 15,00,000);

Cap: 10% of the targeted corpus.

4.2.2.3. Retail schemes:

i. Minimum: Lower of (1% of the AUM of the retail scheme or USD 2,00,000).

4.2.3. However, in terms of FPI Regulations (refer Para 2.2.2. above), in respect of such AIFs based in IFSCs in India, with a resident Indian non-individual as sponsor/ manager, the limits on contribution by such sponsor/ manager are not in line with the contribution requirements specified in the IFSCA (FM) Regulations, 2025. While FPI Regulations prescribe contribution limits based on category of AIF, IFSCA (FM) Regulations, 2025 prescribe the limits based on type of scheme e.g. venture capital scheme, open-ended restricted scheme. Further, in terms of thresholds, while FPI Regulations prescribe a cap of 2.5% (for Category I/II AIFs) and 5% (for Category III AIFs) of the corpus, the IFSCA (FM) Regulations, 2025 prescribe a minimum of 2.5% (for close-ended funds) / 5% (for open-ended funds) and a cap of 10% of the targeted corpus.

4.2.4. IFSCA has requested that such limits for contribution by resident Indian non-individual as sponsor/ manager under FPI Regulations may be aligned with IFSCA (FM) Regulations, 2025 to avoid technical issues related to compliance. In other words, the sponsor of the Fund is perforce required to maintain its contribution exactly at 2.5% / 5% since anything lower or higher than this renders these funds non-compliant with IFSCA/ SEBI’s norms respectively. Maintaining one static threshold contribution in the fund would practically be challenging, particularly in the case of open-ended schemes that, by design, have frequent investor redemptions. A Fund could, therefore, be rendered non-compliant with no cause of action from its side.

4.2.5. In view of the above, the request made by IFSCA to align the limits on contribution by resident Indian non-individuals warrants consideration. It may be noted that even presently a single resident Indian individual is permitted to contribute below 25% of the corpus of a FPI, while aggregate contribution of resident Indian individuals (along with NRI/OCI) can be below 50%, subject to certain conditions. Further, SEBI vide Circular dated June 27, 2024 has also permitted aggregate contribution by resident Indian individuals (along with NRI/ OCI) up to 100% of the corpus of certain IFSC based FPIs, subject to certain terms and conditions as stated therein.

4.2.6. In view of the above, the maximum limit on contribution by resident Indian non-individuals under FPI Regulations may be specified at 10% of the corpus of fund. The same limit shall also be applicable in respect of retail schemes, with resident Indian non-individual as sponsor/manager, that are proposed to be permitted to register as FPIs under Proposal at Para 4.1 above.

4.2.7. Further, as noted at Para 2.2.2 above, FPI Regulations specify that resident Indian non-individuals can contribute to the FPI, subject to it being a sponsor or manager of the FPI. However, as seen in Para 4.2 above, IFSCA (FM) Regulations, 2025 specify that contribution in the fund is required to be made by the FME or its associate. In order to avoid any ambiguity, it is proposed to align these requirements by substituting the condition of resident Indian non-individual to be “Sponsor or Manager” of the FPI with “FME or its associate” for IFSC based FPIs.

Stakeholders’ views

4.2.8. The Committee deliberated and concurred with the proposal.

4.2.9. A total of 14 comments were received from public on the proposals at Para 4.2.6 and 4.2.7 and all the comments were in favor (strongly agree, agree) of the proposal. Thus, it is seen from the comments that the proposal has received overall positive feedback from the public.

4.2.10. Further, with regard to proposal on substituting the condition of resident Indian non-individual to be “Sponsor or Manager” of the FPI with “FME or its associate”, RBI has stated that they have no-objection to the proposal, provided that the entire funds invested in India as FPIs do not directly or indirectly originate from India. In this regard, it may be noted that currently, FPI Regulations permit a resident Indian non-individual to be constituent of an FPI that invests in India, subject to certain conditions as stated at Para 2.2 above. The instant proposal is an extension of the same.

4.2.11. With regard to the proposal on specifying the maximum limit on contribution by resident Indian non-individual as FME or its associate in AIFs and retail schemes set up in IFSCs at 10% of the corpus of the fund (or AUM in case of retail schemes), RBI has commented that no consideration can be allowed from resident Indian (non-individual) as FME or its associate in AIFs and retail schemes set up in IFSCs, as this would amount to resident investing in a scheme in IFSC which may be designed to reinvest in India (as FPI set up in IFSC). If the same is allowed, it would lead to regulatory arbitrage vis-à-vis the provisions for overseas investment under the extant Overseas Investment rules, 2022.

4.2.12. In this regard, it may be mentioned that the provision of a resident Indian sponsor/manager of an AIF investing in India has been enabled by SEBI in 2021 after seeking approval of the Board. Thus, the instant proposal is only to increase such limit on contribution in order to align the same with IFSCA’s requirements.

Proposal

4.2.13. In view of the above, the following are proposed:

a) The condition of resident Indian non-individual to be “Sponsor or Manager” of the FPI may be substituted with “Fund Management Entity or its associate” for IFSC based FPIs.

b) The maximum limit on contribution by resident Indian non-individual as FME or its associate in AIFs and retail schemes set up in IFSCs may be specified at 10% of the corpus of the fund (or AUM in case of retail schemes).

4.3. Permit Indian Mutual Funds to be constituents of FPI  Issue under consideration

4.3.1. In order to facilitate ease of investment in overseas mutual funds or unit trusts (MFs/UTs), to bring transparency in the manner of investment, and to enable Indian mutual funds to diversify their overseas investments, SEBI, through its circular dated November 4, 2024 (Circular placed at Annexure C), permitted Indian mutual fund schemes to invest in overseas MFs/ UTs that have exposure to Indian securities, subject to certain conditions which inter-alia include the following:

a) Pooling: Contribution of all investors of the overseas MF/UT is pooled into a single investment vehicle, with no side-vehicles including segregated portfolios, sub-funds or protected calls, etc.

b) Pari-passu and Pro-rata: Corpus of the overseas MF/UT is a blind pool (i.e. common portfolio) with no segregated portfolios. All investors in the overseas MF/UT have pari-passu and pro-rata rights in the fund, i.e. they receive a share of returns/gains from the fund in proportion to their contribution and have pari-passu rights.

c) Independent investment manager/fund manager: Overseas MF/UT is managed by an independent investment manager/fund manager who is actively involved in making all investment decisions for the fund. This ensures that the investments are made autonomously by the investment manager/ fund manager without influence, directly or indirectly, from any of the investors or from any other entity.

d) Breach of the Limit: At the time of making investments (both fresh and subsequent), Indian Mutual Fund schemes shall ensure that the underlying overseas MF/UTs do not have more than 25% exposure to Indian securities. Any breach in this regard shall be rebalanced within an observance period of 6 months.

4.3.2. Such overseas MFs/ UTs are expected to invest in India as FPIs. However, as mentioned earlier, presently, FPIs cannot have resident Indian non-individual as a constituent, except as mentioned under Para 2.2 above. Operationalizing the above requires an enabling provision in the FPI regulations.

Stakeholders’ views

4.3.3. The Committee deliberated and concurred with the proposal to add an enabling provision in FPI regulations.

4.3.4. A total of 7 comments were received on this proposal and all the comments are in favor (strongly agree, agree) of the proposal. It is seen from the comments that the proposal has received overall positive feedback from the public.

4.3.5. RBI has commented that the resident entities cannot be allowed to invest outside India for reinvesting back into India. Further, RBI is of the view that overseas Mutual Fund or Unit Trust registering as FPI to have Indian mutual fund as a constituent may not be permitted.

4.3.6. However, in this regard, it is informed that SEBI, after carrying out due consultation, had already permitted Indian mutual fund schemes to invest in overseas MFs/ UTs that have exposure to Indian securities, subject to certain conditions in terms of exposure limit, pooling requirement, pari-passu and pro-rata rights, independence of investment manager, etc. Further, it may also be noted that currently, FPI Regulations permit a resident Indian non-individual to be constituents of an FPI that invests in India, subject to certain conditions as stated at Para 2.2 above. Thus the instant proposal is only to facilitate operationalisation of said enablement provided by SEBI.

Proposal

4.3.7. In order to facilitate operationalisation of the aforementioned circular dated November 4, 2024 and consequently enable Indian mutual funds to invest in overseas MFs/ UTs that have exposure to Indian securities, it is proposed that overseas MF/ UT registering as FPI may be permitted to have Indian mutual fund as a constituent, subject to the conditions as mentioned in the circular dated November 4, 2024 as amended from time to time.

4.4. Timeline for applicability of the proposed amendments

4.4.1. The proposals may be made applicable from the date of notification of amendment to the FPI Regulations.

5. Proposal to the Board:

5.1. In order to facilitate participation by resident Indians in Foreign Portfolio Investors (FPIs), the Board may consider and approve the following proposals:

5.1.1. Retail schemes based in IFSCs in India with resident Indian non-individuals as sponsor/manager may be enabled to register as FPIs.

5.1.2. The condition of resident Indian non-individual to be “Sponsor or Manager” of the FPI may be substituted with “Fund Management Entity or its associate” for IFSC based FPIs.

5.1.3. The maximum limit on contribution by resident Indian non-individual as FME or its associate in AIFs and retail schemes set up in IFSCs may be specified at 10% of the corpus of the fund (or AUM in case of retail schemes).

5.1.4. Overseas MF/UT registering as FPI may be permitted to have Indian mutual fund as a constituent subject to the conditions as mentioned in the circular dated November 4, 2024 as amended from time to time.

5.1.5. Above proposals may be made applicable from the date of notification of amendment to FPI Regulations.

5.2. The above may be provided by amending the FPI Regulations. A comparison of the existing provisions with the proposed amendments to the FPI Regulations is placed at Annexure D. The draft notification for the proposed amendment is placed at Annexure E.

5.3. The Board is requested to consider and approve the proposals at Para 5.1 and 5.2 above with suitable amendments as considered appropriate and authorize the Chairman, to make consequential and incidental changes and take necessary steps to give effect to the decision of the Board.

Encls:

1. Annexure A – Consultation Paper on proposals to facilitate participation by resident Indians in Foreign Portfolio Investors (FPIs) dated August 08, 2025 (10 pages)

2. Annexure B – Summary of the public comments received on the Consultation Paper dated August 08, 2025 (1 page)

3. Annexure C – SEBI’s Circular dated November 04, 2024 on Investments in Overseas Mutual Funds/ Unit Trusts by Indian Mutual Funds (4 pages)

4. Annexure D – Comparison of the existing provisions with the proposed amendments to the FPI Regulations (2 pages)

5. Annexure E – Draft notification for proposed amendments to FPI Regulations (3 pages)

Addendum

1. RBI vide e-mail dated September 11, 2025 has further stated that as such there is no concern under the extant Foreign Exchange Management Act, 1999 (FEMA) guidelines for the instant agenda item (and its proposals) provided that the investment by residents (managers/sponsors and domestic mutual funds) comply with the extant FEM (Overseas Investment) Rules, 2022, more specifically eligibility and investment limits stipulated for Overseas Portfolio Investment therein.

2. FPI Regulations currently permit a Resident Indian non-individual to be constituent of an FPI, subject to certain conditions. Such investments are required to comply with FEM (Overseas Investment) Rules, 2022. Accordingly, SEBI concurs with the comments of RBI. As the instant proposal is an extension of the existing provisions, such investments as mentioned in the proposals will continue to be subject to FEM (Overseas Investment) Rules, 2022.

3. The Board is requested to take note of this Addendum along with Board Memorandum on the subject and approve the proposals at Para 5.1 and 5.2 of Board Memorandum with suitable amendments as considered appropriate. The Board is also requested to authorize the Chairman, to make consequential and incidental changes and take necessary steps to give effect to the decision of the Board.

Annexure-A

Consultation Paper available on SEBI website at the following link: https://www.sebi.gov.in/reports-and-statistics/reports/aug-2025/consultation-paper-on-proposals-to-facilitate-participation-by-resident-indians-in-foreign-portfolio-investors-fpis-95953.html

Annexure-B

Summary of the public comments on the Consultation Paper on ‘Proposals to facilitate participation by resident Indians in Foreign Portfolio Investors (FPIs)’

Annexure-C

Circular available on SEBI website at the following link:

https://www.sebi.gov.in/legal/circulars/nov-2024/investments-in-overseas-mutual-funds-unit-trusts-by-indian-mutual-funds_88198.html

Annexure-D

Amendment to SEBI (Foreign portfolio Investor) Regulations, 2019, shall be notified after following the due process.

Annexure-E

Amendment to SEBI (Foreign portfolio Investor) Regulations, 2019, shall be notified after following the due process.