SEBI tweaks Foreign Venture Capital Investors' registration, eligibility criteria

Capital markets watchdog SEBI has notified rules to streamline the framework for the registration of Foreign Venture Capital Investors (FVCIs). 

Under this, the process of granting registration to FVCIs and processing other post-registration references has been delegated to designated depository participants (DDPs) in line with provisions prescribed for FPIs (Foreign Portfolio Investors).

An applicant seeking registration as an FVCI is required to engage a DDP to avail of its services for obtaining a registration certificate as an FVCI and at all times the DDP and the custodian of the FVCI shall be the same entity. 

At present, the processing of applications for granting registration to FVCIs and related due diligence is carried out by the Securities and Exchange Board of India (Sebi). 

"No person shall buy, sell or otherwise deal in securities as a foreign venture capital investor unless it has obtained a certificate granted by a designated depository participant on behalf of the Board (Sebi)," the regulator said in a notification issued on September 6.

FVCIs under the current rules are required to appoint a domestic custodian to monitor investment of FVCIs in India, and furnish periodic reports and other information to Sebi. 

Going by the notification, "a foreign venture capital investor or a global custodian acting on behalf of the foreign venture capital investor shall enter into an agreement with a designated depository participant and a custodian, before making any investment under these regulations". 

In addition, the regulator has made additions to the eligibility criteria for FVCI whereby Resident Indians (RIs)/ Non Resident Indians (NRIs)/ Overseas Citizen of India (OCI) can be constituent of the applicant. This is subject to conditions, such as contribution of a single NRI/ OCI/ RI should be below 25% of the total contribution in the corpus of the applicant; the aggregate contribution by them should be below 50% of the total contribution in the corpus of the applicant; and they should not be in control of the applicant.

At present, an investment company, investment trust, pension fund, investment partnership, mutual fund, endowment fund, charitable institution, university fund or any other entity incorporated outside India; an asset management company, investment management company, investment manager or any other investment vehicle incorporated outside India, could apply for registration as an FVCI.

Also, FVCIs are required to hold their investments in demat form. To give this effect, Sebi has amended Foreign Venture Capital Investors rules that will come into force with effect from January 1, 2025.

FVCI is an investor incorporated and established outside India, who invests primarily in unlisted securities of Venture Capital Undertakings and Venture Capital Funds. As of March, 2023, a total of 269 FVCIs are registered with Sebi. Further, the cumulative investments made by FVCIs directly in investee companies stood at Rs 48,286 crore during the period.