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Friday, October 24, 2008

[FEMA]Allocation of FII Investments - irrespective of Debt or Equity

Dear All,
Allocation of FII Investment between debt and equity

As you aware of that as per extent Schedule of the Foreign Exchange Management (Transfer or Issue of any Foreign Secuity) Regulations, 2004, in terms of which Foreign Institutional Investors are allowed to purchase, on repatriation basis, dated Government securities/treasury bills, listed non-convertible debentures/bonds, commercial papers issued by an Indian company and units of domestic mutual funds and Security Receipts issued by Asset Reconstruction Companies either directly from the issuer of such securities or through a registered stock broker on a recognized stock exchange in India, subject to:

1. The FII shall restrict allocation of its total investment between equity and debt instruments (including dated Government Securities and Treasury Bills in the Indian capital market) in the ratio of 70:30

2. If the FII desires to invest up to 100 per cent in dated Government Securities including Treasury Bills, non-convertible debentures/bonds issued by an Indian company, it shall form a 100 per cent debt fund and get such fund registered with SEBI; and

3. The total holding by a single FII in each tranche of scheme of Security Receipts shall not exceed 10 per cent of the issue and the total holdings of all FIIs put together shall not exceed 49 per cent of the paid up value of each tranche of scheme of Security Receipts issued by the Asset Reconstruction Companies.

In order to accord flexibility to the FIIs to allocate their investments across equity and debt instruments, the Securities and Exchange Board of India (SEBI) , vide its Circular No IMD/FII & C/33/2007 dated October 16, 2008 has dispensed with the conditions provided in Regulation 15 (2) of the SEBI FII Regulations pertaining to restrictions of 70: 30 ratio of investments in equity and debt, respectively. Accordingly, it has been decided, to dispense with the existing provisions under FEMA Regulations vide AP DIR Circular No.25 dated 17th October 2008. However, the stipulations made in point no 3 above in respect of FII holdings in security receipts issued by Asset Reconstruction Companies shall continue.

So, now there is no restriction for investment by FII with regard to allocation of product like equity, debt etc w.e.f 17th Oct 2008.

Thanks & Regards
Karvy - Merchant Banking
Contact: 919790906827


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