SEBI Consultation Paper for Foreign Portfolio Investors and Designated Depository Participants
The SEBI Consultation Paper released on December 5, 2025, serves as a comprehensive effort to modernize the regulatory landscape for Foreign Portfolio Investors (FPIs) and Designated Depository Participants (DDPs). The primary intent is to consolidate all individual circulars and amendments issued since the previous Master Circular of May 2024 into a single, cohesive reference document. By streamlining the language and removing redundant or expired transitory provisions, SEBI aims to enhance the "Ease of Doing Business" for international investors while maintaining a robust oversight framework.
Central to the proposals is a significant overhaul of the FPI onboarding process, which now formalizes the use of scanned documents and digital signatures to accelerate registration. A key highlight is the introduction of an abridged Common Application Form (CAF) designed for related entities, such as sub-funds under a single master fund, which eliminates repetitive data entry by auto-populating shared information. Additionally, SEBI has introduced a "risk-based" compliance category for Government Securities-only FPIs (GS-FPIs). These entities, which invest exclusively in sovereign debt, will benefit from relaxed KYC review periods and exemptions from disclosing "investor group" details, reflecting their lower risk profile compared to equity-heavy funds.
The paper also addresses more complex structural issues, such as the participation of Non-Resident Indians (NRIs) and Overseas Citizens of India (OCIs) in FPIs based out of International Financial Services Centres (IFSCs). The new norms allow for higher NRI/OCI contribution and control—up to 100 percent in certain cases—provided they operate within specific risk-mitigation boundaries. Simultaneously, SEBI has raised the threshold for mandatory granular disclosures of beneficial ownership from Rs. 25,000 crore to Rs. 50,000 crore, a move intended to account for the overall growth in market capitalization and reduce the compliance burden on mid-sized funds that do not pose systemic concentration risks.
The consultation paper introduces stricter operational discipline for Offshore Derivative Instruments (ODIs), commonly known as P-Notes. It proposes that ODIs referencing derivatives must be redeemed within a strict one-year window with no option for renewal, thereby preventing long-term regulatory arbitrage. For DDPs and Custodians, the paper mandates the publication of an Investor Charter and standardized grievance redressal mechanisms, ensuring higher transparency. These measures collectively represent SEBI's shift toward a more nuanced regulatory environment where compliance requirements are proportionately aligned with the specific risks and investment styles of foreign participants.
