All About NRI-FPI Investments Merger

Exampundit.in

5 years ago

Introduction: Finance Minister in the maiden Budget 2019 speech proposed the merger of investments made thorough Non-Resident Indian(NRI) portfolio route with the Foreign portfolio investment (FPI). Merger of NRI and FPI route is a very progressive move and is the adoption of one of the key recommendations of H R Khan committee. This could help bringing much larger pools of NRI capital through pooled and professionally managed structures. If both the routes are merged, the designated banks will have to register with SEBI.

Positive Outcomes:

Merger of NRI with FPI will increase more NRI portfolio flows into India
This move provides NRIs with seamless access to the Indian equity and bonds market, in line with the Foreign Portfolio Investment (FPI) route.
While this move is expected to bring in more foreign funds into the Indian market, it simultaneously equips better NRIs to make informed investment decisions with a much better bouquet of products to choose from.
The easing of KYC norms for foreign investors makes investing all the investment aremore transparent.
The cap on NRI participation through the FPI route had received serious push back from global fund managers and this proposal should be received by the investment managers very positively.

Complexities in Implementation:

While FPIs can buy or sell shares in the Indian markets through their custodians, mainly foreign banks, NRIs can make the investments only through their designated banks.
These investments are regulated by RBI’s portfolio investment scheme (PIS).
The NRE accounts are also used for other investment purposes including real estate purchases and fixed deposits.
There are several practical challenges with the implementation of the FPI-NRI merger and more than two lakh NRIs who hold both fixed deposits and market investments will be impacted.
Various market participants too are opposed to the proposed merger of NRI and FPI routes.

SEBI about the merger:

The Securities and Exchange Board of India (SEBI) had already expressed its reservations on raising the minimum public holding to 35% – as proposed in the Budget – from the current stipulated 25%.

Conclusion:

It has now emerged that the proposed merger of the NRI-FPI route would also be a long-drawn process since various modalities need to be worked out between SEBIand the Reserve Bank of India (RBI), along with the Department of Economic Affairs (DEA).

Foreign investors can now buy the debt of listed real estate investment trusts (REITs)

Foreign investors will be allowed to subscribe to listed debt securities issued by REITs and infrastructure investment trusts (InvITs).

This paves the way for NRIs to benefit fully from the real estate boom that India is expected to witness over the next few years.

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