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Source-This post is based on the article “FPI disclosure norms deadline extended: Why is SEBI seeking investor data?” published in “The Indian Express” on 26th January 2024.
Why in the News?
The Securities and Exchange Board of India (SEBI) has extended the timeframe for Foreign Portfolio Investors (FPIs) to reveal details about all entities with ownership, economic interest, or control in the FPI.
What are FPIs and How are they different from FDI?
| Aspect | Foreign Portfolio Investors (FPIs) | Foreign Direct Investment (FDI) |
| Definition | FPIs are investors like mutual funds, hedge funds, pension funds, and other institutions that invest in foreign financial assets such as stocks, bonds, and securities. | FDI involves a foreign entity investing long-term in a business abroad, gaining significant control or ownership in the company. |
| Investment timeframe | Short to medium-term | Long term |
| Investment concentration | Financial assets, such as stocks and bonds. | Business or physical assets of a company. |
| Risk involved | Volatile | Stable |
Why has SEBI asked FPIs to provide additional disclosures?
SEBI’s initiative intends to deter potential round-tripping and misuse of the FPI channel.
1) SEBI requests supplementary details from FPIs with over 50% of their Indian equity assets under management (AUM) concentrated within a single corporate group or exceeding Rs 25,000 crore in Indian equity markets.
2) Sovereign wealth funds, companies listed on specific global exchanges, public retail funds, and other regulated pooled investment vehicles are excluded from the heightened disclosure requirements.
What is round tripping?
1) Round tripping refers to money that leaves the country through various channels and makes its way back into the country often as foreign investment.
2) There are various reasons that promote round tripping. Mainly, Tax concessions allowed in the foreign country encourages individuals to park money there and then reroute it.
UPSC Syllabus- Indian Economy
