Category-I FPI
Also written Category I foreign portfolio investor · Category I foreign portfolio investors
The first of the two classes of Foreign Portfolio Investor under SEBI's 2019 FPI Regulations: governments and related investors, pension and university funds, and appropriately regulated entities and funds.
In plain language
SEBI's FPI Regulations, 2019 sort foreign portfolio investors (FPIs) into two categories. Category I is decided by who the investor is. It covers three kinds of investor. The first is a government or a government-related body. The second is a pension fund or a university fund. The third is an entity that is appropriately regulated.
The list has one common thread. Someone answerable stands behind the investor. A fund with no regulator can still get into Category I, but only on three conditions. Its investment manager must be appropriately regulated. The manager must itself be registered as Category I. And the manager must take responsibility for all that the fund does.
Anyone who does not fit Category I falls into Category II.
How it works
From Chapter 12, "Category I foreign portfolio investor" includes:
(i) Government and Government-related investors - central banks, sovereign wealth funds, international or multilateral organisations or agencies, including entities controlled or at least 75% directly or indirectly owned by such investors.
(ii) Pension funds and university funds.
(iii) Appropriately regulated entities - insurance or reinsurance entities, banks, asset management companies, investment managers, investment advisors, portfolio managers, broker dealers and swap dealers.
(iv) Entities from FATF member countries (or countries specified by the Central Government by order, agreement or treaty) which are:
- I. appropriately regulated funds;
- II. unregulated funds whose investment manager is appropriately regulated and registered as a Category I FPI, provided the manager takes responsibility for all acts of commission or omission of the fund;
- III. university-related endowments of universities in existence for more than five years.
(v) An entity (A) whose investment manager is from an FATF member country and registered as Category I FPI; or (B) which is at least 75% owned, directly or indirectly, by an entity eligible under (ii), (iii) or (iv) that is from an FATF member country - again with the manager or owner taking responsibility for the applicant's acts.
IFSC. An applicant incorporated or established in an International Financial Services Centre is deemed appropriately regulated.
General FPI eligibility (for either category) includes: not a resident Indian; not an NRI or OCI; resident of a country whose regulator signs the IOSCO MMoU or a bilateral MoU with SEBI; banks from countries whose central bank is a BIS member; no UN Security Council sanctions, and not from an FATF-flagged jurisdiction; fit and proper.
A worked example
Illustrative applicants; the classification rules are the workbook's.
| Applicant | Category | Why |
|---|---|---|
| A foreign central bank | I | Government / Government-related investor |
| A sovereign wealth fund's wholly owned investment company | I | At least 75% owned by a Government-related investor |
| A foreign university pension plan | I | Pension fund |
| A regulated insurer from abroad | I | Appropriately regulated entity |
| An unregulated fund from an FATF country, managed by a regulated manager registered as Category I, which accepts responsibility for the fund | I | Clause (iv)(II) |
| An endowment of a university founded 3 years ago, from an FATF country | Not I under (iv)(III) - the university must have existed more than five years | |
| A subsidiary 70% owned by a regulated bank from an FATF country | Not I under (v)(B) - needs at least 75% | |
| A family office | II | Listed in Category II |
The 70%-owned subsidiary and the young university's endowment would have to qualify under some other clause, or fall into Category II.
Why NISM asks about it
Chapter 12 (Foreign Portfolio Investors) lists the Category I and Category II definitions, and its review question asks: "A Sovereign Wealth Fund shall be registered under which category under FPI Regulations?" - Category I. Another asks whether a resident Indian can be an FPI (false). The 75% ownership test and the five-year university test are the numbers to learn.
Common exam traps
- Sovereign wealth funds and central banks are Category I.
- 75%, not 51%, is the ownership threshold in clauses (i) and (v)(B).
- University endowments need the university to have existed more than five years.
- Unregulated funds can be Category I only through a Category I-registered regulated investment manager who takes responsibility for them.
- IFSC applicants are deemed appropriately regulated.
- Corporate bodies, family offices and individuals are Category II, not Category I.
- A resident Indian cannot be an FPI, though resident Indians can be constituents in the limited cases the regulations allow.
Where this is taught
Free preparation for NISM Series III-ARelated terms
- CustodianThe SEBI-registered entity that holds a fund's securities in accounts of its own and settles its trades, so the assets sit somewhere other than with the manager who decides what to buy.
- Category-II FPIThe residual class of Foreign Portfolio Investor under SEBI's 2019 FPI Regulations: everyone not eligible for Category I, such as corporate bodies, family offices, individuals, charities and unregulated funds.
- Designated Depository ParticipantA SEBI-approved custodian and DP, also an AD Category-1 bank, that registers Foreign Portfolio Investors on SEBI's behalf after due diligence - and must be the same entity as the FPI's custodian.
- Common Application FormThe single electronic form on NSDL's FPI Monitor portal covering FPI registration with SEBI, PAN allotment and KYC for opening a bank and demat account, replacing three separate applications.
- Eligible fund managerAn India-based, SEBI-registered fund manager meeting Section 9A conditions, who manages money for overseas "eligible investment funds" without making those funds taxable as Indian residents.
- Authorised Dealer Category-1 bankThe RBI authorisation an entity must hold to be eligible as a Designated Depository Participant for FPIs, alongside SEBI registration as a custodian.
- FPI MonitorThe NSDL electronic portal (www.fpi.nsdl.co.in) where FPI applicants file the Common Application Form, DDPs grant registration and the FPI Registration certificate is generated.
- Offshore derivative instrumentsInstruments issued by an FPI that reference Indian securities; SEBI bars ODIs referencing derivatives and allows onshore derivative hedging only via a separate Category I registration, within limits.
- Portfolio Investment SchemeThe FEMA route through which SEBI-registered FPIs, and NRIs permitted by a designated AD Category-I bank branch, buy shares, convertible debentures and warrants of listed Indian companies within set limits.
- Accreditation agenciesThe subsidiaries of stock exchanges or depositories, or other SEBI-specified entities, that verify an applicant's income and net worth and issue the certificate that makes them an accredited investor.
- SWAGAT-FISingle Window Automatic and Generalised Access for Trusted Foreign Investor: government and government-related investors and public retail funds, freed from the FPI aggregate 50% NRI/OCI/RI limit.
- FPI RouteThe route for non-resident portfolio investment: not more than 10% of a listed Indian company's post-investment fully diluted paid-up capital, by investors registered with SEBI under the FPI Regulations, 2019.
- Foreign Portfolio InvestmentInvestment by a person resident outside India in an Indian company that stays under 10% of paid-up capital — above that, the same holding counts as Foreign Direct Investment instead.