Context:
SEBI seeks investor data when deadline of FPI disclosure norms extended.
- Foreign portfolio investors (FPIs), who are mandated to liquidate their holdings as per the Securities and Exchange Board of India’s (Sebi) January-end deadline, will get 7 months more to provide additional disclosures.
Key points related to SEBI’s additional disclosure norms:
- Concentration of Investments –
- Specific Foreign Portfolio Investors (FPIs) holds concentrated portion of their equity in a single investee company or corporate group.
- Concerns arise over potential misuse of the FPI route by promoters or coordinated investors to bypass regulatory requirements, including those related to substantial acquisition disclosures and maintaining minimum public shareholding in listed companies.
- Preventing Misuse of FPI Route –
- While Press Note 3 issued by the government in April 2020 does not apply to FPI investments, there are concerns that entities with large Indian equity portfolios could potentially disrupt the orderly functioning of Indian securities markets by misusing the FPI route.
- The additional disclosures aim to mitigate these concerns.
- Details Required–
- FPIs holding more than 50% of their Indian equity assets under management (AUM) in a single Indian corporate group or holding over Rs 25,000 crore of equity AUM in the Indian markets are required to disclose granular details of all entities holding any ownership, economic interest, or exercising control in the FPI.
- Exempted FPIs –
- Sovereign wealth funds (SWFs), listed companies on certain global exchanges, public retail funds, and other regulated pooled investment vehicles with diversified global holdings are exempted from making enhanced disclosures.
- Potential Impact on Market –
- Recent withdrawal by FPIs from the domestic market may partly be attributed to meeting the end-of-January deadline set by SEBI for disclosure. FPIs sold a significant amount of domestic shares in January.
Press Note 3:
- An entity of a country, sharing land border with India or where the beneficial owner of an investment into India is situated in or is a citizen of any such country, can invest only under the Government route.
- Enforced through Foreign Exchange Management (Non-Debt Instruments) Amendment Rules 2020
Assets under management (AUM):
- Total market value of the investments managed by a person or entity on behalf of investors.
- Fluctuates to reflect the flow of money in and out of a fund and the price performance of the assets.
- When calculating AUM, some financial institutions include bank deposits, mutual funds, and cash, while others limit it to funds under discretionary management from individual investors.
Sovereign Wealth Fund (SWF):
- State-owned investment fund
- Provide benefit for a country’s economy and its citizens.
- Sources of fund – reserves from state-owned natural resource revenues, trade surpluses, bank reserves that may accumulate from budgeting excesses etc.
Foreign Direct Investment (FDI) vs. Foreign Portfolio Investment (FPI):
| Foreign Direct Investment (FDI) | Foreign Portfolio Investment (FPI) |
| Long-term investment | Generally short-term investment |
| Investment in physical assets | Investment in financial assets |
| Aim – to increase enterprise capacity or productivity or change management control | Aim – to increase capital availability |
| Leads to technology transfer, access to markets and management inputs | Results only in capital inflows |
| Flows into the primary market | Flows into the secondary market |
| Entry and exit is relatively difficult | Entry and exist is relatively easy |
| Eligible for profits of the company | Eligible for capital gain |
| Does not tend be speculative | Tends to be speculative |
| Direct impact on employment of labour and wages | No direct impact on employment of labour and wages |
Read more about: SEBI
Source: The Indian Express
Previous Year Question
What is/are the purpose/purposes of Government’s ‘Sovereign Gold Bond Scheme’ and ‘Gold Monetization Scheme’?
1. To bring the idle gold lying with Indian households into the economy
2.To promote FDI in the gold and jewellery sector
3. To reduce India’s dependence on gold imports
Select the correct answer using the code given below.
[UPSC Civil Services Exam – 2016 Prelims]
(a) 1 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3
Answer: (c)
Explanation:
Statement 2 is not correct:
Government’s ‘Sovereign Gold Bond Scheme’ and ‘Gold Monetization Scheme’do not promote and regulate FDI investments into gold and jewelry industry.
