Investment by FIIs is regulated under SEBI (FII) Regulations, 1995 and Regulation 5(2) of FEMA Notification No.20 dated May 3, 2000. SEBI acts as the nodal point in the entire process of FII registration. The FIIs therefore need not have to deal with RBI directly, but the process is carried out through SEBI.
Definition of Important Terms - SEBI (FII)Regulations, 1995
Designated Bank: means any bank in India, which has been authorised by the Reserve Bank of India to act as a banker to Foreign Institutional Investors.
Domestic Asset Management Company: means an asset management company approved by the Board under the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 and who has been granted certificate of registration under Securities and Exchange Board of India (Portfolio Managers) Regulations, 1993.
Domestic Custodian: includes any person carrying on the activity of providing custodial services in respect of securities.
Domestic Portfolio Manager: means a portfolio manager registered under the Securities and Exchange Board of India (Portfolio Managers) Regulations, 1993.
Foreign Institutional Investor: means an institution established or incorporated outside India which proposes to make investment in India in securities;
Provided that a domestic asset management company or domestic portfolio manager who manages funds raised or collected or brought from outside India for investment in India on behalf of a sub-account, shall be deemed to be a Foreign Institutional Investor.
Sub-account: includes foreign corporates or foreign individuals and those institutions, established or incorporated outside India and those funds, or portfolios, established outside India, whether incorporated or not, on whose behalf investments are proposed to be made in India by a Foreign Institutional Investor.
Registration of Foreign Institutional Investor (Regulation -3)
No person shall buy, sell or otherwise deal in securities as a Foreign Institutional Investor unless he holds a certificate granted by the Board(SEBI) under these regulations. An application for the grant of certificate shall be made to the Board in form A and remit registration fee of US$ 10,000.
Consideration of Application - [Regulation-6 (1)]
For the purpose of the grant of certificate the Board shall take into account all matters which are relevant to the grant of a certificate and in particular the following, namely:-
the applicant's track record, professional competence, financial soundness, experience, general reputation of fairness and integrity;
whether the applicant is regulated by an appropriate foreign regulatory authority;
whether the applicant has been granted permission under the provisions of the Foreign Exchange Regulation Act, 1973 (46 of 1973) by the Reserve Bank of India for making investments in India as a Foreign Institutional Investor;
whether the applicant is -
an institution established or incorporated outside India as Pension Fund or Mutual Fund or Investment Trust; or
an Asset Management Company or Nominee Company or Bank or Institutional Portfolio Manager, established or incorporated outside India and proposing to make investments in India on behalf of broad based funds and its proprietary funds, if any; or
a Trustee or a Power of Attorney holder, incorporated or established outside India, and proposing to make investments in India on behalf of broad based funds and its proprietary funds, if any;
university fund, endowments, foundations or charitable trusts or charitable societies.
Provided that while considering the application from the applicants under clause (iv) the Board may take into account the following namely :-
whether the applicant has been in existence for a period of atleast 5 years.
Whether it is legally permissible for the applicant to invest in securities outside the country of its incorporation or establishment;
Whether the applicant has been registered with any statutory authority in the country of their incorporation or establishment;
Whether any legal proceeding has been initiated by any statutory authority against the applicant.
For the purposes of this regulation, "broad based fund" means a fund, established or incorporated outside India, which has at least fifty twenty investors, with no single individual investor holding more than five ten per cent of the shares or units of the fund.
Provided that if the broad based fund has institutional investor(s) it shall not be necessary for the fund to have fifty twenty investors:
Provided further that if the broad based fund has an institutional investor who holds more than five ten percent of the shares or units in the fund, then the institutional investor must itself be a broad based fund; or
Whether the grant of certificate to the applicant is in the interest of the development of the securities market.
Whether the applicant is a fit and proper person?
Regulation 6 (2)
A domestic portfolio manager or domestic asset management company shall be eligible to be registered as a foreign institutional investor to manage the funds of sub-accounts.
the domestic portfolio manager or domestic asset management company shall make an application in terms of regulations 3, 4 and 5.
For the grant of certificate to a domestic asset management company or to a domestic portfolio manager the Board shall consider the following:
whether the applicant is an approved asset management company or a registered portfolio manager and that the approval or registration is valid
whether any disciplinary proceeding is pending before the Board against such applicant.
Where an application is made for grant of certificate under these regulations, the Board shall, as soon as possible but not later than three months after information called for by it is furnished, if satisfied that the application is complete in all respects, all particulars sought have been furnished and the applicant is found to be eligible for the grant of certificate, grant a certificate in form B, subject to payment of fees in accordance with the Second Schedule. (US $ 10000). Provided further that a domestic portfolio manager or domestic asset management company shall not be liable to pay fee.
Application for registration of sub-accounts (Regulation 12)
Procedure and Grant of Registration of Sub-accounts (Regulation 13)
A Foreign Institutional Investor shall seek from the Board registration of each sub-account on whose behalf he proposes to make investments in India.
Notwithstanding any thing contained in sub-regulation (1) above, any sub-account which has been granted approval prior to the commencement of these regulations by the Board shall be deemed to have been granted registration as a sub-account by the Board under these regulation.
An application for registration as a sub-account shall contain particulars specified in para 1 of Annexure B to Form A of the First Schedule.
For the purpose of grant of registration the Board shall take into account all matters which are relevant to the grant of such registration to the sub-account and in particular the following, namely-
the applicant is an institution or fund or portfolio established or incorporated outside India and proposes to make investment in India;
the applicant is a broad based fund or proprietary fund or a foreign corporate or individual;
(bb) the applicant is a fit and proper person.
Provided that a non-resident Indian or an overseas corporate body registered with Reserve Bank of India shall not be eligible to invest as sub-account or as foreign institutional investor.
the Foreign Institutional Investor through whom the application for registration is made to the Board holds a certificate of registration as Foreign Institutional Investor; and
the Foreign Institutional Investor through whom an application for registration of sub-account is made, is authorised to invest on behalf of the sub-account.
The foreign institutional investor through whom the application for registration is made, has submitted undertakings that the sub-account fulfils the criteria referred to in this sub-regulation in a manner specified in para 2 of Annexure B to Form A of the First Schedule.
(ee) In case the sub-account is a foreign corporate or individual, the foreign institutional investor, through whom the application for registration is made, shall furnish information and undertaking as specified in para 3 of Annexure B to Form A of the First Schedule.
The sub-account has paid registration fees in accordance with the Second Schedule.
The Board on receipt of the undertakings and the registration fees as referred to in sub-regulation (1), may grant registration to the sub- account.
A sub-account granted registration in accordance with sub-regulation (2) of this regulation shall be deemed to be registered as a Foreign Institutional Investor with the Securities and Exchange Board of India for the limited purpose of availing of the benefits available to Foreign Institutional Investors under section 115 AD of Income Tax Act,1961, (43 of 1961).