To Make Investments Easier, SEBI Revises Regulations for Foreign Venture Capital Investors' Registration

sebi

Nitin Konde, Apoorva Bajj

Sep 11, 2024 — 2 min read

To Make Investments Easier, SEBI Revises Regulations for Foreign Venture Capital Investors' Registration

Foreign Venture Capital Investors (FVCIs) can now be more easily registered thanks to new regulations announced by the capital markets regulator Sebi. Designated depository participants (DDPs) are now responsible for evaluating post-registration references and granting registration to foreign variable capital investment (FVCI) companies, in accordance with the rules established for foreign portfolio investors (FPIs).

The process of acquiring a registration certificate as an FVCI begins with an application engaging a DDP, and the DDP and custodian of the FVCI must always remain a single entity.

Currently, the Securities and Exchange Board of India (Sebi) handles the processing of applications for registering FVCIs and any associated due diligence.

In a notice published on September 6, the regulator, Sebi, stated that to engage in securities transactions as a foreign venture capital investor, one must first obtain a certificate issued by a certified depository participant on behalf of the Board (Sebi).

What Steps Do FCVIs Need to Follow?

A domestic custodian must be appointed by FVCIs under the current regulations to oversee FVCI investments in India and provide Sebi with reports and other information regularly.

If the notice is to be believed, before making any investments subject to these restrictions, a foreign VC or global custodian representing the VC must engage in an arrangement with a designated depository participant and a custodian.

Eligibility Criteria for FVCI

The eligibility criteria for FVCI have also been expanded by the regulator to include Overseas Citizens of India (OCIs), Non Resident Indians (NRIs), and Resident Indians (RIs). The following requirements must be met: the total contribution from all NRIs, OCIs, and RIs must not exceed 25% of the applicant's corpus; the combined contribution from all of them must not exceed 50% of the applicant's corpus; and they must not be under the applicant's control.

Investment trusts, mutual funds, endowment funds, pension funds, investment partnerships, asset management companies, investment managers, and university endowment funds, as well as any other investment vehicle incorporated outside of India, are currently eligible to apply for registration as an FVCI.

Additionally, FVCIs must save their assets in a demat format. This will be put into action on January 1, 2025, thanks to Sebi's revised regulations for foreign venture capital investors.

Founded and based outside of India, FVCI is a major investor in the unlisted stocks of VC funds and venture capital undertakings. So far in March of 2023, 269 FVCIs have been recorded with Sebi. Additionally, within the same period, FVCIs invested a total of INR 48,286 crore directly into investee companies.