The Securities and Exchange Board of India (SEBI) vide notification dated 7 April 2020 (Amendment Notification), notified an amendment to the SEBI (Foreign Portfolio Investors) Regulations 2019 (FPI Regulations), expanding the criteria for being categorised as a Category I Foreign Portfolio Investor (Category I FPI), which set the stage for permitting Mauritius-based funds, the second largest contributor to FPI investments in India, to be registered as Category I FPIs. Putting the speculations to rest, the Ministry of Finance, Department of Economic Affairs, notified Mauritius as a jurisdiction whose entities will be eligible for registration as a Category I FPI from 13 April 2020 (DEA Order).

Erstwhile position

Investor Categories

The FPI Regulations classified foreign portfolio investors (FPIs) under 2 (two) categories, namely, Category I and Category II.

Category I FPIs

  • Government and Government related investors such as central banks, sovereign wealth funds, international or multilateral organizations or agencies including entities controlled or at least 75% directly or indirectly owned by such Government and Government related investor(s);
  • Pension funds and university funds;
  • Appropriately regulated entities such as insurance or reinsurance entities, banks, asset management companies, investment managers, investment advisors, portfolio managers, broker dealers and swap dealers;
  • Appropriately regulated funds from the Financial Action Task Force (FATF) member countries; and
  • Unregulated funds whose regulated investment manager is from a FATF member country.

Category II FPIs

  • Appropriately regulated funds not eligible as Category-I FPI;
  • Endowments and foundations;
  • Charitable organisations;
  • Corporate bodies;
  • Family offices;
  • Individuals;
  • Appropriately regulated entities investing on behalf of their client, as per conditions specified by the Board from time to time; and
  • Unregulated funds in the form of limited partnership and trusts.

Prior to the Amendment Notification, a foreign fund seeking registration as a Category I FPI without relying on its investment manager or on the basis of its ownership, was required to be from a FATF member country.

What is FATF jurisdiction?

The Financial Action Task Force (FATF) is an inter-governmental body that sets international standards that aim to prevent illegal activities, such as money laundering and terrorist financing. As a policy-making body, the FATF works to generate the necessary political will to bring about national legislative and regulatory reforms in these areas and has more than 200 countries and jurisdictions that have committed to implementing such measures.

The FATF monitors countries to ensure they implement the FATF Standards fully and effectively, and holds countries to account that do not comply.

Such member counties / jurisdictions are considered FATF jurisdictions and under the FPI regulations, FPIs from such member countries / jurisdictions are eligible for registration as Category I FPI.

However, a number of favoured jurisdictions for funds such as the Cayman Islands and Mauritius are not direct members of FATF but nevertheless implement the anti-money laundering measures recommended by FATF through affiliated organizations such as Caribbean FATF and Eastern and Southern Africa Anti-Money Laundering Group. Owing to this anomaly between the FPI Regulations and the status of certain typical fund jurisdictions, a number of funds based out of such jurisdictions were rendered ineligible for obtaining a Category I FPI registration.

Amendment Notification

Pursuant to the Amendment Notification, the requirements to meet the eligibility criteria of a Category I FPI have been relatively relaxed. Therefore, post the Amendment Notification, Category I FPIs could include entities from FATF member countries or from any other country specified by the Central Government by order or by way of an agreement or treaty with other sovereign Governments. Such entities would include:

  • appropriately regulated funds;
  • unregulated funds whose investment manager is appropriately regulated and registered as a Category I FPI;
  • university related endowments of such universities that have been in existence for than 5 years.

Therefore, unlike the stand prior to the Amendment Notification, SEBI opened the door for non-FATF domiciled investors to register as a Category I FPI, hence widening the scope of eligible foreign investors looking to invest through the FPI regime.

Inclusion of Mauritius in the eligible list

In furtherance of the Amendment Notification, which paved the way for inclusion of other non-FATF member jurisdictions, the Central Government promptly specified Mauritius under the relevant provision of the FPI Regulations by way of the DEA Order. As a result of the Amendment Notification read with the DEA Order, funds based out of Mauritius are now eligible to seek registration as a Category I FPI.


As a result of the requirement of being situated in a FATF member country, a number of FPIs from non-FATF member countries which belonged to the erstwhile Category II FPI, were re-categorised under the extant FPI Regulations as Category II FPIs, subjecting them to higher KYC requirements. Further, exemption from indirect transfer tax provisions, which were earlier available to FPIs from non-FATF member countries being erstwhile Category II FPIs, were no longer available to them. Such FPIs, now falling under Category II per the FPI Regulations, were also prohibited from issuing offshore derivate instruments.

Thus, FPIs from non-FATF, which enjoyed numerous benefits under the erstwhile FPI regime, were forced to reassess their structures. However, with the Amendment Notification, SEBI seems to have taken cognizance of the challenges being posed to FPIs which, other than their place of incorporation, fulfil the other eligibility conditions for a Category I FPI. In the days post the issuance of the Amendment Notification and leading up to the DEA Order, it was speculated that the amendment to the FPI Regulations was a prelude to the inclusion of Mauritius-based funds in the list of Category I eligible FPIs. The Central Government, with the issuance of the DEA Order, confirmed the surmise and promptly specified Mauritius as Category I eligible jurisdiction. This is a welcome move and has come as a breather to the numerous Mauritius-based FPIs. It is expected to restore the flow of FPI funds from Mauritius to the pre-FPI Regulations 2019 phase and can be a blessing in these turbulent times when the global economy is on shaky grounds.

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