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 Broad Based Fund as, a fund established or incorporated outside India, which has at least twenty investors with no single individual investor 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. 2. 3. 4. 5. 6. 7. 8. 9. Pension Funds Mutual Funds Insurance Companies Investment Trusts Banks University Funds Endowments Foundations Charitable Trusts / Charitable Societies

Further, following entities proposing to invest on behalf of broad based funds, are also eligible to be registered as FIIs: 1. 2. 3. 4. Asset Management Companies Institutional Portfolio Managers Trustees 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 the applicant. y Certified copy of the relevant clauses or articles of the Memorandum and Articles 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 other particulars 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.

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 y y y y 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. Applicant should have track record, professional competence, financial soundness, experience, general reputation of fairness and integrity; Applicant must be legally permitted to invest in securities outside the country or its in-corporation / establishment. The applicant is required to have the permission under the provisions of the Foreign Exchange Management Act, 1999 from the Reserve Bank of India. The applicant must be a "fit and proper" person. 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. Payment of registration fee of US $ 5,000.00

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.

The validity period for such a registration is 5 years. After

Registration as a sub-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:

a. Institution or funds or portfolios established outside India, whether incorporated or not. b. Proprietary fund of FII. c. Foreign Corporates d. 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 the Sub-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 sub account 3) US $ 1,000 is to be submitted as the fee at the time of submitting the application through a Demand Draft in the name of "Securities and Exchange Board of India" payable at New York 4) OCBs / NRIs are not permitted to get registered as FII/sub-account

Financial instruments available for FII investments a. Securities in primary and secondary markets including shares, debentures and warrants of companies, unlisted, listed or to be listed on a recognized stock exchange in India; b. Units of mutual funds; c. Dated Government Securities; d. Derivatives traded on a recognized stock exchange; e. Commercial papers f. security receipts g. Indian Depository Receipts Investment limits on equity investments by FII/sub-account Within the overall limit of 24% / 49 % / or the sectoral caps ; the following limits into equity 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 total issued capital of an Indian company. b. Investment on behalf of each sub-account shall not exceed 10% of total issued capital of an India company. c. For the sub-account registered under Foreign Companies/Individual category, the investment limit is fixed at 5% of issued capital.

Investment limits on debt investments by FII/sub-account The FII investments in debt securities are governed by the policy if the Government of India. Currently following limits are in effect: Limits for FII investments in Government debt Investment route
100 % Debt Route 70 : 30 Route

Prescribed Limit
US $ 1.55 billion US $ 200 million US $ 1.75 billion

Total Limit

Limit for investment in corporate debt; US $ 500 million.

Other investment limits Normal FII (70:30 Route) 100% Debt FII Total investment in equity and equity 100% investment shall be made in debt related instruments shall not be less than security only. 70% of aggregate of all investments.