The Securities and Exchange Board of India (“SEBI”) issued a consultation paper on August 08, 2025, proposing amendments to the SEBI (Foreign Portfolio Investors) Regulations, 2019 (“FPI Regulations”) to facilitate participation by resident Indians in Foreign Portfolio Investors (“Consultation Paper”).
The Consultation Paper outlines measures to permit wider participation by resident Indian entities and Indian mutual funds in Foreign Portfolio Investors (“FPIs”), harmonize regulatory thresholds with the International Financial Services Centres Authority (Fund Management) Regulations, 2025 (“IFSCA FM Regulations”), and operationalize recent policy decisions. The proposals are summarised below.
Key Proposals:
(i) Enabling retail schemes in IFSCs with resident Indian non-individual sponsor/manager to register as FPIs
SEBI is proposing allowing retail schemes, having resident Indian non-individual sponsor/manager, and registered with the International Financial Services Centres Authority (“IFSCA”), to register as FPIs, due to the following reasons:
Retail schemes are investment schemes under IFSCA regulations with at least 20 investors. A key requirement is that no single investor can hold more than 25% of the scheme, and there is a 10% concentration limit on exposure to a single company.
Existing rules already permit resident Indian individuals to be part of an FPI, with limits on their contribution and subject to the contribution being made through the Liberalised Remittance Scheme.
Current framework also allows resident Indian individuals to contribute up to 100% of the corpus of certain International Financial Services Centre ("IFSC") based FPIs, that are similar to mutual funds.
Thus, SEBI proposes to permit retail schemes to register as FPIs on the same basis as IFSC-based AIFs with resident Indian non-individual sponsor/manager.
(ii) Alignment of contribution limits for resident Indian non-individual sponsor/manager with IFSCA (FM) Regulations, 2025
The FPI Regulations currently cap contributions by resident Indian non-individual sponsors/managers at 2.5% of corpus for Category I & II AIFs and 5% for Category III AIFs. By contrast, IFSCA FM Regulations prescribe minimum contributions (2.5% for close-ended, 5% for open-ended schemes) and a cap of 10% of corpus. This mismatch results in a restriction on the IFSC-based funds to maintain contribution levels at exactly 2.5 % or 5 %, as applicable, in order to remain compliant under both regimes.
Thus, SEBI proposes to set a maximum limit of 10% on contribution by resident Indian non-individual under the FPI Regulations, and the same shall also be applicable to retail schemes permitted to register as an FPI with resident Indian non-individuals acting as sponsor / manager.
Further, under the FPI Regulations, it is specified that a resident Indian can contribute to an FPI, provided it is a sponsor or manager of the FPI, and on other hand, under IFSCA FM Regulations, it is specified that the contribution in fund is required to be made by the Fund Management Entity (“FME”) or associate. SEBI proposes to remove this ambiguity by replacing the terms “Sponsor or Manager” in FPI Regulations with “Fund Management Entity or its associate”, to align with terms used under IFSCA FM Regulations.
(iii) Permitting Indian mutual funds to be constituents of FPIs
Currently, SEBI allows Indian mutual fund schemes to invest in overseas mutual funds or unit trusts (“MFs/UTs”) having Indian exposure, subject to safeguards such as exposure limits, pari-passu rights, and independent investment management.
However, under current FPI Regulations, FPIs cannot have resident non-individuals as constituents except in case of an FPI being an eligible investment fund (as per section 9A of Income Tax Act, 1961), an FPI being an AIF set up in IFSC or an FPI being controlled by an Investment Manager (controlled and/or owned by NRI/OCI/resident Indian and registered with SEBI).
Thus, to operationalize the framework, and enable Indian mutual funds to invest in overseas MFs/UTs, SEBI proposes that overseas MFs/UTs registering as FPIs may include Indian mutual funds as constituents, subject to the limits set out.
Conclusion:
The proposals seek to expand permissible FPI structures for resident Indian participation, remove regulatory frictions between SEBI and IFSCA regimes, and facilitate Indian mutual fund investment in overseas funds with Indian exposure.
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