Description

SEBI amends FPI regulations to introduce single window access for trusted foreign investors and modify provisions for mutual funds and AIFs as FPI applicants.

Summary

SEBI has issued the Securities and Exchange Board of India (Foreign Portfolio Investors) (Second Amendment) Regulations, 2025, effective December 1, 2025. The amendments introduce a single window access mechanism for trusted foreign investors and modify provisions allowing SEBI-registered mutual funds to be part of FPI applicants. Key changes include revised investment limits for AIFs and retail schemes within FPI structures, and enhanced flexibility for fund management entities.

Key Points

  • Introduction of “Single Window Access (Swagat-FI)” for trusted foreign investors including government and government-related investors, and public retail funds
  • SEBI-registered mutual funds can now be part of FPI applicant structures subject to conditions
  • Investment limits for AIFs as part of FPI applicant increased to 10% of applicant’s corpus (from previous 2.5%/USD 750,000)
  • Investment limits for retail schemes set at 10% of AUM (Assets Under Management)
  • Regulations effective 180 days from gazette publication date, except certain provisions which are effective immediately
  • Amendments to definition of fund management entity and associated entities

Regulatory Changes

New Definition - Single Window Access (Swagat-FI):

  • Covers government and government-related investors as per Regulation 5(a)(i)
  • Includes public retail funds as defined in Regulation 22(4)
  • Subject to conditions prescribed by SEBI from time to time

Mutual Funds as FPI Applicants:

  • Mutual funds registered under SEBI (Mutual Fund) Regulations, 1996 can be part of FPI applicant
  • Subject to compliance with conditions specified by SEBI

Revised Investment Limits:

  • AIFs (Alternative Investment Funds): Can invest up to 10% of applicant’s corpus (previously 2.5% or USD 750,000, whichever lower)
  • Retail Schemes: Can invest up to 10% of AUM
  • Changes in terminology from “sponsor or manager” to “fund management entity or its associate”

Technical Amendments:

  • Renumbering of existing clause (d) to clause (dh) in Regulation 2(1)
  • Addition of new clause (d) for Single Window Access definition
  • Modifications to Regulation 4(c)(v) regarding applicant composition

Compliance Requirements

For Foreign Portfolio Investors:

  • Government and government-related investors and public retail funds should prepare for single window access mechanism
  • FPIs with mutual fund or AIF components must ensure compliance with revised investment limits
  • Fund management entities need to review and adjust investment structures to comply with new 10% thresholds

For Designated Depository Participants (DDPs):

  • Update systems and processes to accommodate single window access for eligible investors
  • Revise FPI registration procedures to reflect amendments regarding mutual fund participation
  • Implement revised investment limit checks for AIFs and retail schemes

For SEBI-Registered Mutual Funds:

  • Evaluate eligibility and commercial viability of participating as part of FPI applicant structures
  • Ensure compliance with SEBI-prescribed conditions for such participation

Important Dates

  • December 1, 2025: Date of notification and publication in Official Gazette
  • Immediate Effect: Provisions under Regulation 3, Sub-regulation II, clauses (i) and (ii) regarding Single Window Access
  • 180 Days from Publication: Remaining provisions become effective (approximately May 30, 2026)

Impact Assessment

Positive Impacts:

  • Streamlined access for trusted foreign investors through single window mechanism may attract more government and institutional investors
  • Increased investment limits (10% for AIFs and retail schemes) provide greater flexibility for portfolio structuring
  • Inclusion of mutual funds as FPI applicants broadens the universe of potential foreign investors
  • Simplified compliance for government-related entities and public retail funds

Operational Considerations:

  • DDPs and custodians need to update registration and monitoring systems
  • Fund management entities must review existing FPI structures for compliance with new limits
  • Potential increase in FPI registrations from government and retail fund categories
  • Enhanced regulatory oversight may be required for new categories of FPI applicants

Market Impact:

  • Expected to facilitate increased foreign investment flows through streamlined processes
  • Greater participation of mutual funds and AIFs in FPI structures may diversify foreign investment base
  • Improved ease of doing business for trusted institutional investors

Impact Justification

Regulatory amendment affecting FPI registration process and investment limits for mutual funds and AIFs, with staged implementation over 180 days