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NRIs can now invest via the FPI route

Mumbai: The budget has proposed several measures to boost overseas fund flows. Merger of the non-resident Indian (NRI) and foreign portfolio investor (FPI) routes of investment, increasing statutory FPI investment limits, and simplification of documentation processes are among the key budget steps.

These measures would provide a more conducive regulatory environment to FPIs, especially NRIs, experts said.

“Foreign investors have rightly been recognised as a key source of capital for the Indian economy and an attempt to provide harmonised and hassle-free investment experience has been made,” said Suresh Swamy, partner, PWC India.

Currently, NRIs invest in Indian stock markets through portfolio investment schemes (PIS), which are governed by the Reserve Bank of India (RBI). The scheme comes with several restrictions and NRIs aren’t often keen on using the route. Assets under custody of investors using the NRI route are only around Rs 3,000 crore, Sebi data showed.

A committee on FPIs had discussed this issue. However, RBI had then opposed the plan since several NRIs held non-equity assets, such as fixed deposits, through PIS accounts.

“NRI investments currently are subject to tax deduction at source (TDS). If NRIs are allowed to come through the FPI route, there will be no TDS applicable,” said Rajesh Gandhi, partner, Deloitte India. “Offshore funds will be able to sell their India investment products to NRIs without any major restrictions.”

FPIs are set to get deeper access into the Indian markets as the government has also proposed to increase FPI limits in listed companies. Currently, there is a cap of 24 per cent on FPI investments in a company. This cap can be increased up to the sectoral limit by the company through a board resolution.

Under the new rules, the FPI limit in a company would be automatically set to the maximum permissible limit for the sector. However, if the company wants lower FPI participation, it can pass a special resolution capping the limit.

For instance, insurance companies have an FPI sectoral cap of 49 per cent. Until now, FPIs could automatically invest up to 25 per cent in insurers and could buy up to 49 per cent if the company passed a board resolution. Going forward, FPIs will be able to buy up to 49 per cent automatically. The budget has also proposed to simplify KYC norms for FPIs.
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