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When “Profit” Isn’t Always Distributable
– Understanding Reportable vs Distributable Profits under Ind AS and the Companies Act, 2013
– Sourish Kundu | corplaw@vinodkothari.com
In the sphere of corporate law intertwined with accounting principles, there arises a question on profits that are reported in the financials of a company and the amount that can actually be distributed, that is to say, a company’s reported profits may be impacted by several accounting standards, yet that does not mean it can distribute all of that profit as dividends. Under Indian law and accounting rules, there is a clear distinction between reportable profits (what appears in the financial statements) and distributable profits (what a company is legally permitted to pay out to shareholders). In this article, we decode the difference between reportable profits and distributable profits and the implications of this difference, whether companies are expected to prepare two statements of profit or loss, how investors are expected to read the financials to ascertain what can be expected as dividend.
What are Reportable Profits?
“Reportable profits” refers to the profits (or loss) shown in the Statement of Profit & Loss prepared under Indian Accounting Standards (Ind AS). It includes all recognised items of income, expenses, gains and losses, whether realised or unrealised, so long as they meet the recognition and measurement rules in terms of the relevant accounting standards. For example, under Ind AS 109 (Financial Instruments), paragraph 5.7.1 states that changes in fair value of financial assets or liabilities measured at fair value through profit or loss (FVTPL) must be recognised in the PnL. Similarly, fair-value measurement principles under Ind AS 113 (Fair Value Measurement) apply where other Ind ASs require or permit fair value.
Because reportable profits include unrealised fair value gains, remeasurements, or other accounting adjustments, there is always a possibility of an inflated or deflated picture being painted wherein there is a difference between a company’s “profit” number from the perspective of distribution.
What are Distributable Profits?
“Distributable profits” are that portion of profits (or reserves) out of which a company can legally declare and pay dividends to its shareholders under the Companies Act, 2013. Section 123(1) of the Act states that a company shall not declare or pay any dividend for a financial year except:
- out of the profits of the company for that year, after providing for depreciation, and
- out of the profits of any previous financial years, after providing for depreciation and remaining undistributed.
The first proviso to section 123(1) further clarifies that unrealised gains, notional gains or revaluation surplus arising from measurement at fair value shall not be treated as realised profits for the purpose of dividend declaration.
“Provided that in computing profits any amount representing unrealised gains, notional gains or revaluation of assets and any change in carrying amount of an asset or of a liability on measurement of the asset or the liability at fair value shall be excluded”
Thus, even though accounting standards allow recognition of such gains/losses in the PnL statement, the law restricts their distribution and ensures distribution can be made of only actual realised profits.
As per the section, following adjustments are required to be made to reportable profits to compute distributable profits
| Reportable Profits | XXX |
| Less: | |
| (b) unrealised gains | (XXX) |
| (c) notional gains | (XXX) |
| (d) revaluation of assets (positive) | (XXX) |
| (e) any change in carrying amount of assets (positive) on measurement at FV | (XXX) |
| (f) any change in carrying amount of liability (reduction) on measurement at FV | |
| Add: | |
| (a) revaluation of assets (negative) | XXX |
| (b) any change in carrying amount of assets (reduction) on measurement at FV | XXX |
| (c) any change in carrying amount of liability (increment) on measurement at FV | XXX |
| Distributable Profits | XXX |
So effectively, it is not the case that companies need to maintain or prepare parallel PnL, one for the accounting purpose and one for the purpose of ascertaining distributable profits, the adjustments as illustrated above needs to be carried out. This is similar to adjustments carried out for the purpose of ascertaining profits in terms of Section 198 of the Companies Act, 2013, which is broadly used for determining CSR expenditure and the limits of managerial remuneration. Interestingly, the treatment of fair value changes in assets and liabilities is akin to how it is treated here, that is, fair value gains are not given credit and hence reversed, and on the other hand, fair value losses are not deducted and hence added back to arrive at the figure out of which managerial remuneration is to be paid, or CSR expenditure is required to be made.
Some examples of such fair value changes and their impact on the reportable and distributable profit figures are given below:
Examples:
Consider the following scenarios for company following Ind AS principles of accounting:
- Treatment of FVTPL
| Date | Particulars | Value | Reportable Profits | Distributable Profits |
| July, 2024 | Acquisition of investment | Rs. 100 | – | – |
| 31st March, 2025 | Value of investments | Rs. 150 | 50 (represents fair value gains routed through PnL) | – |
| January, 2026 | Sale of investments | Rs. 200 | – | 100 (realised gain) |
- Deferred Tax Asset
| Date | Particulars | Value | Reportable Profits | Distributable Profits |
| July, 2024 | Acquisition of investment | Rs. 100 | – | – |
| 31st March, 2025 | Value of investments | Rs. 70 | -30 (represents fair value loss routed through PnL) | – |
| Deferred tax asset | Rs. 9 (30% tax on Rs. 30) | 9 | – | |
| January, 2026 | Sale of investments | Rs. 90 | – | -10 |
Why the Difference Exists
The divergence arises because accounting standards and company-law provisions serve different purposes:
- The Ind AS framework aims to present true and fair information about an entity’s financial performance and position, which includes remeasurements and accounting for fair value changes.
- The company law legislation aims to protect the company’s capital base and ensure dividends are paid out of “real” profits, thereby protecting creditor interests and preventing erosion of capital.
Thus, distributing unrealised or notional gains could expose the company (and its creditors) to risk if those gains reversed. The legal restriction is a form of capital maintenance concept.
Conclusion
In sum: reportable profits (what Ind AS shows) is not always the same as distributable profits (what a company can legally pay out). The presence of items such as unrealised fair-value gains, which are recognised in profit but not “realised” and hence, not available for distribution under company law, creates this difference. Understanding this distinction is essential because in the end, the dividend cheque flows only from the legally distributable pool and not simply from what the profit and loss account might suggest.
Read more:
Should you expect adjustment in profits for “Expected Credit Loss”?
Piercing through subjectivity to reach out for SBOs
ROCs uncovering SBOs through publicly available information
– Pammy Jaiswal and Darshan Rao | corplaw@vinodkothari.com
Introduction
The framework for SBO identification can be traced back to the recommendations of the Financial Action Task Force (FATF), a global watchdog for combating money laundering and terrorist financing. Section 90 of the Companies Act, 2013 (‘Act’) read with its Rules translates the recommendations into provisions for enforcing the concept, with two broad manners of identification methods. The first being the objective test where the shareholding is picked up through the layers to see the type of entity and the extent of holding to identify the SBO for the reporting entity. The second is the subjective test where the aspects of control and significant influence are evaluated from all possible corners to reach the SBO. It is generally seen that the objective test is the most common way for SBO identification, however, in most of the cases where the regulator has made the identification, it has held the hands of subjectivity. As a follow-up to the LinkedIn case[1], we have discussed a few other rulings where the RoC has taken diverse ways under the subjectivity armour to reach out to the SBOs. The article also explains the principles of law that emerge from every case law, giving a broader angle to the readers on the ever evolving corporate governance norms in the context of SBO identification.
Some of the aspects via which SBOs have been identified in the rulings discussed in this article are as follows:
- Control over the Board of the listed overseas parent
- CEO in relation to and not only of the Pooled Investment Vehicle
- Financial dependence and control established via usage of common domain name
- Erstwhile promoters obligation to disclose where the new promoters are exempt for the then time period
We have discussed these in detail in the following paragraphs to inform the way RoCs went on a spree to unearthen the SBOs taking shields of the language of the existing legal provisions around SBO identification.
Subjectivity facets for SBO identification
As discussed above, the two broad subjective tests for SBO identification are right to exercise or the actual exercising of significant influence or control over the reporting entity. It is imperative note the relevance of stating both the situations as a potential to become SBO for the reporting, being:
- Right to exercise significant influence or control [note here that actual exercise is not a prerequisite]; or
- Actual exercising of significant influence or control.
Further, it is pertinent to note that ‘control’ has been defined under Section 2(27) of the Act to “include the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders agreements or voting agreements or in any other manner”.
Again, the term ‘significant influence’ has been defined under Rule 2(1)(i) of the SBO Rulesas the “power to participate, directly or indirectly, in the financial and operating policy decisions of the reporting company but is not control or joint control of those policies”.
In the following parts of the article, we will be able to know, the manner in which these aspects have been investigated to reach out for the SBOs.
A. Examining cross holdings, chairmanship and other publicly available data[2]
The Indian reporting entity was a WoS of an overseas listed entity which was a large conglomerate and hence there were several cross holdings in the entities in the top level. There was no declaration of SBO in the given case on account of the argument given that the holding entity is a listed company and hence, there is no individual holding control or significant influence over the said parent. Enquiry was made about the details of the promoters, directors, KMP and shareholders of certain promoter entities as well as chairperson of board meetings and UBO for the reporting company.
Further, upon investigation into the public records of the holding entity, it was found that one particular individual from the promoter category along with his family holds approx 21.46% in the ultimate parent entity and that his son significant stake in two other promoter group entities which in turn holds in the ultimate parent entity of the reporting company.
RoC concluded that the son along with his family members, directly and indirectly exercises significant influence in the ultimate parent. Further, the same person also holds the position of a chairperson in the said entity when the said company already has a full-fledged chairperson already indicating a situation of proxy control through legally remote mechanism. Accordingly, he should have been declared as SBO for the reporting company in India. The snapshot of holding is given below:
B. Individual manager/ CEO related to Pooled Investment Vehicle and not necessarily of the Investment Vehicle[3]
In cases where the SBO is identified via the members holding the reporting company and the ultimate shareholder as such is a pooled investment vehicle, in that case even if there is no individual as a general partner or the investment manager or the CEO of such vehicle, then any individual in relation to the pooled investment vehicle and not necessarily of such a vehicle can be regarded as an SBO. In this case the CEO of the investment manager was considered as an SBO since he was the one responsible for the decision making of such investment manager and hence, relevant for investment decisions of the vehicle.
While arriving at the conclusion of this ruling, RoC clearly indicated that the legislative scheme of Section 90 ensures that at the end of every ownership chain, a natural person(s) must be identifiable as the SBO. Companies cannot rely on the complexity of foreign fund structures or the absence of direct nominees to evade compliance; the obligation to investigate and file BEN forms lies squarely on the Indian company. The ROC implicitly aligned Indian law with FATF Recommendations 24 and 25[4], emphasizing that beneficial-ownership disclosure extends through investment vehicles, LLPs, and trusts
C. Financial / Business Dependency, Usage of common domain name, KMPs of foreign parent employed in Indian reporting company[5]
In a very interesting case where 100% of the shares were only held by a few individuals, RoC concluded that even in such entities identification of SBO is still possible on account of assessment of several factors. These include the reporting test as well as financial control test. In such cases, one may consider evaluating the business dependency in terms of supply to or from the reporting entity, other clues like entities with a common domain name, similarity in trademark, procurement policies.
In this case it was investigated and consequently observed that the shareholder of the reporting company held a controlling stake in the overseas supplier entities on which the reporting company had the highest dependency. Further, the RoC also found out that both the reporting company and these supplier entities had applied for a similar trademark. Further, these entities were reported to be under the common control of an individual who happens to be the director as well the majority shareholder of the reporting company. It is also imperative to note that one of the director-cum senior employees and another senior employee are the ones who have been shown as the supervisor and UBO for the overseas supplier entities.
In this ruling, RoC also referred to the FATF Guidance[6] on control in cases with no shareholding. It includes the following means:
- Control through positions held within a legal person: Natural persons who exercise substantial control over a legal person and are responsible for strategic decisions that fundamentally affect the business practices or general direction of the legal person may be considered a beneficial owner under some circumstances. Depending on the legal person and the country’s laws, directors may or may not take an active role in exercising control over the affairs of the entity.
- Control through informal means: Furthermore, control over a legal person may be exercised through informal means, such as through close personal connections to relatives or associates. Further, when an individual is using, enjoying or benefiting from the assets owned by the legal person, it could be grounds for further investigation if such individual is in the condition to exercise control over the legal person.
D. Current exemption gets overruled by past obligation to declare[7]
ROC held clearly in this case that the current holding structure even though exempt from the disclosure requirements pursuant to Rule 8 of the SBO Rules, the same will still be subject to penal actions where the declaration was not made as and when applicable in the period prior to qualifying for such exemption.
Concluding Remarks
On perusal of each of these rulings, it becomes clear that no matter how complicated or how simple the corporate structure is, the regulators will leave no stone unturned while carrying on their investigation for finding the real SBOs. Regulators have the determination to uncover SBOs who exercise control behind every legal entity.
A few measures that can be adopted include establishing robust frameworks to continuously track changes in shareholding and control arrangements, maintaining detailed documentation of every ownership and control analysis conducted and filing all SBO disclosures promptly with the Registrar of Companies (RoC). It is also imperative that suitable amendments are made to define the ‘ultimate beneficial owner’ (UBO) rather than the ‘significant beneficial owner’. To some extent, this can be helpful to those corporations with several layers of entities to identify the UBO, although the process would lose its viability considering the scale and extent of tracing.
However, the concern that remains is that the exercise to trace the origins of relationship may prove to be an onus on entities apart from the penal consequences it carries in case of non-compliance.
[2] In the matter of Samsung Display Noida Private Limited
[3] In the matter of Leixir Resources Private Limited
[4]FATF Beneficial Ownership of Legal Persons
[5] In the matter of Metec Electronics Private Limited
[6] FATF Beneficial Ownership of Legal Persons
[7] In the matter of Shree Digvijay Cement Ltd
Control based SBO identification beyond the current legislation
AIF Regulatory framework evolves from light-touch to right-hold
Simrat Singh | Finserv@vinodkothari.com
When AIF Regulations were formally introduced in 2012, the regulatory approach was deliberately light. The framework targeted sophisticated investors, allowing flexibility with limited oversight. Over the years, however, AIFs have become significant participants in capital markets. Market practices over the decade exposed regulatory loopholes and arbitrages. For example, some investors who did not individually qualify as QIBs accessed preferential benefits indirectly through AIF structures and investors who were restricted to invest in certain companies started investing through AIF making AIF an investment facade. There were concerns regarding circumvention of FEMA norms as well1. In the credit space, regulated entities such as banks and NBFCs started channeling funds through AIFs to refinance their stressed borrowers, raising concerns around loan evergreening2. These developments prompted regulatory response. RBI first issued two circulars, one in 2023 and the other in 2024. Finally, in 2025 formal directions governing investments by regulated entities in AIFs were also issued3. These Directions introduced exposure caps and provisioning requirements.4
While the RBI addressed prudential risks arising from regulated entities’ participation in AIFs, SEBI focused on investor protection, governance within the AIF ecosystem and curbing the regulatory arbitrages. First it mandated on-going due diligence by AIF Managers5. It then mandated specific due diligence6 of investors and investments of AIF to prevent indirect access to regulatory benefits. Fiduciary duties of sponsors and investment managers and reporting obligations were progressively codified through circulars. Managers were expected to maintain transparency vis-a-vis their investment decisions, maintain written policies including ones to deal with conflict of interest with unitholders and submit accurate information to the Trustee. What were once broad, principle-based expectations have evolved into detailed, enforceable rules. Regulatory tightening has been matched by a more assertive enforcement approach. SEBI’s recent settlement order7 against an AIF underscores its increasing scrutiny of governance lapses, mismanagement of conflicts and inaccurate reporting. This clearly signals that any compliance gaps will no longer be overlooked and are likely to attract regulatory action. In a separate adjudication order, SEBI imposed penalties on both the Trustee and the Manager for the delayed winding-up of the scheme, underscoring that accountability within an AIF structure extends to all key parties and is not limited to the Manager alone.
However, SEBI’s approach has not been solely restrictive. Alongside regulatory tightening, it has also sought to preserve commercial flexibility and respond to market needs. Examples include the introduction of the co-investment framework8 for AIFs, framework for offering differential rights to select investors and a revamp for angel funds9.
Together, these measures are reshaping the regulatory landscape for AIFs and their managers. Investors can no longer rely on AIF structures to indirectly obtain regulatory advantages otherwise unavailable to them. As AIFs have grown in scale and importance, what is emerging is a more transparent, prudentially sound and closely supervised regulatory regime designed to align investor protection and commercial flexibility.
- See SEBI’s Consultation paper on proposal to enhance trust in the AIF ecosystem ↩︎
- See our write-up on AIFs being used for regulatory arbitrages here. ↩︎
- RBI (Investment In AIF) Directions, 2025 ↩︎
- See our detailed analysis of the Directions here. ↩︎
- See our write-up on ongoing due diligence for AIFs here ↩︎
- See our FAQs on specific due diligence of investors and investments of AIFs here. ↩︎
- See the complete order here ↩︎
- See our write-up on co-investments here. ↩︎
- See our write-up on changes w.r.t Angel Funds here ↩︎
Revised Form IEPF-5 paves way for simplified claim process
Lavanya Tandon, Senior Executive & Anushka Ganguly, Executive | corplaw@vinodkothari.com
Demystifying Structured Debt Securities: Beyond Plain Vanilla Bonds
Palak Jaiswani, Manager | corplaw@vinodkothari.com
Debentures, one of the most common means for raising debt funding, where investors lend money to the issuer in return for periodic interest and repayment of principal at maturity. While the basic feature of any debenture is a fixed coupon rate and a defined tenure (commonly referred to as plain vanilla instruments), sometimes these instruments may be topped up with enhanced features such as additional credit support, market-linked returns, convertibility option, etc., thus referred to as structured debt securities.
Structured debt securities: motivation for issuers
Apart from the economic favouring such structural modifications, a primary motivation for the issuer in issuing such structured instruments might be the regulatory advantages that these securities offer. For instance,
- Chapter VIII of SEBI NCS Master Circular provides an extra limit of 5 ISINs for structured debt securities & market-linked securities, thus more room for the issuers to issue debt securities, compared to the restriction of a maximum of 9 ISINs for plain vanilla debt.
- In addition, as per NSE Guidelines on Electronic Book Provider (EBP) mechanism, market-linked debentures are not required to be routed through EBP, allowing issuers to place such instruments almost like an over-the-counter trade. This allows issuers to structure the debt securities on a tailored basis and offer them directly to specific investors.
Insider Trading Safeguards: Sensitising Fiduciaries
– Team Corplaw | Corplaw@vinodkothari.com
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Open in new tab SEBI says SWAGAT to investors
– Team Corplaw | corplaw@vinodkothari.com
– Approves major proposals easing institutional investments in IPOs, minimum offer size for larger entities, AIF entry, increased threshold for related party transaction approvals etc.
Relaxed norms for Related Party Transactions
- Introduction of scale-based threshold for materiality of RPTs for shareholders’ approvals based on annual consolidated turnover of the listed entity
| Annual Consolidated Turnover of listed entity (in Crores) | Approved threshold (as a % of consolidated turnover) |
| < Rs.20,000 | 10% |
| 20,001 – 40,000 | 2,000 Crs + 5% above Rs. 20,000 Crs |
| > 40,000 | 3,000 Crs + 2.5% above Rs. 40,000 Crs |
- Revised thresholds for significant RPTs of subsidiaries
- 10% of standalone t/o or material RPT limit, whichever is lower.
- Simpler disclosure to be prescribed by SEBI for RPTs that does not exceed 1% of annual consolidated turnover of the listed entity or Rs. 10 Crore, whichever is lower. ISN disclosures will not apply.
- ‘Retail purchases’ exclusions extended to relatives of directors and KMPs, subject to existing conditions
- Inclusion of validity of shareholders’ approval as prescribed in SEBI circular dated 30th March 2022 and 8th April, 2022
- Rationale (See Consultation Paper)
- Read detailed article – Relaxed Party Time?: RPT regime gets lot softer
Relaxation in thresholds for Minimum Public Offer (MPO) and timelines for compliance Minimum Public Shareholding (MPS) for large issuers (issue size of 50,000 Cr and above)
- Reduction in MPO requirements for companies with higher market capitalisation
- Relaxed timelines for complying with MPS
- Post listing, the stock exchanges shall continue to monitor these issuers through their surveillance mechanism and related measures to ensure orderly functioning of trading in shares
- Applicable to both entities proposed to be listed and existing listed entities that are yet to comply with MPS requirements
- Following changes recommended in Rule 19(2)(b) of Securities Contracts (Regulation) Rules, 1957:
| Post-issue market capitalisation (MCap) | MPO requirements | Timeline to meet MPS requirements (25%) | ||
|---|---|---|---|---|
| Existing provisions | Post amendments | Existing provisions | Post amendments | |
| ≤ 1,600 Cr | 25% | NA | ||
| 1,600 Cr < MCap ≤ 4,000 Cr | 400 Crs | Within 3 years from listing | ||
| 4,000 Cr < MCap ≤ 50,000 Cr | 10% | Within 3 years from listing | ||
| 50,000 Cr < MCap ≤ 1,00,000 Cr | 10% | 1,000 Cr and at least 8% of post issue capital | Within 3 years from listing | Within 5 years from listing |
| 1,00,000 Cr < MCap ≤ 5,00,000 Cr | 5000 Cr and atleast 5% of post issue capital | 6, 250 Cr and 2.75% of post issue capital | 10% – within 2 years 25% – within 5 years | If MPS on the date of listing <15%, then15% – within 5 yrs25% – within 10 yrs If MPS >15% on the date of listing, 25% within 5 yrs |
| MCap > 5,00,000 Cr | 15,000 Cr and 1%of post issue capital, subject to minimum dilution of 2.5% | If MPS on the date of listing <15%, then15% – within 5 yrs25% – within 10 yrs If MPS on the date of listing >15%, 25% within 5 yrs | ||
- Rationale (see Consultation Paper):
- Mandatory equity dilution for meeting MPS requirement may lead to an oversupply of shares in case of large issues;
- Dilution may impact the share prices despite strong company fundamentals.
Broaden participation of institutional investors in IPO through rejig in the anchor investors allocation
- Following changes recommended in Schedule XIII of ICDR Regulations.
- Merge Cat I and II of Anchor Investor Allocation to a single category of upto 250 crores. Minimum 5 and maximum 15 investors subject to a minimum allotment of ₹5 crore per investor.
- Increasing the number of permissible Anchor Investor allottees for allocation above 250 crore in the discretionary allotment – for every additional ₹250 crore or part thereof, an additional 15 investors (instead of 10 as per erstwhile norms) may be permitted, subject to a minimum allotment of ₹5 crore per investor.
- Life insurance companies and pension funds included in the reserved category along with domestic MF; proportion increased from 1/3rd (33.33%) to 40%
- 33% for domestic MFs
- 7% for life insurance companies and pension funds
- In case of undersubscription, the unsubscribed part will be available for allocation to domestic MF.
- Rationale (See Consultation Paper)
- Increase in permitted investors:
- To ease participation for large FPIs operating multiple funds with distinct PANs, which currently face allocation limits due to line caps
- Given the recent deal size, most issuances fall within the threshold of Cat II or higher, limiting the relevance of Cat 1, therefore merge Cat 1 and Cat II
- Including life insurance companies and pension funds:
- Growing interest in IPOs, the amendment will ensure participation and diversify long term investor base.
- Increase in permitted investors:
Clarifications in relation to manner of sending annual reports for entities having listed non-convertible securities [Reg 58 of LODR]
- For NCS holders whose email IDs are not registered
- A letter containing a web link and optionally a static QR code to access the annual report to be sent
- Instead of sending hard copy of salient features of the documents as per sec 136 of the Act
- Aligned with Reg 36(1) (b) of LODR as applicable to equity listed cos
- Currently, temporary relaxation was given by SEBI from sending of hard copy of documents, provided a web-link to the statement containing the salient features of all the documents is advertised by the NCS listed entity
- A letter containing a web link and optionally a static QR code to access the annual report to be sent
- Timeline for sending the annual report to NCS holders, stock exchange and debenture trustee
- To be specified based on the law under which such NCS-listed entity is constituted
- For e.g. – Section 136 of the Companies Act specifies a time period of at least 21 days before the AGM.
Light touch regulations for AIFs that are exclusively for Accredited Investors and Large Value Funds
- Introduction of new category of AIFs having only Accredited Investors
- Reduction of minimum investment requirements for Large Value Funds (LVFs) from Rs. 70 crores to Rs. 25 crores per investor
- Lighter regulatory framework for AIs – only/ LVFs
- Existing eligible AIFs may also opt for AI only/ LVF classification with associated benefits
- Rationale: see Consultation Paper
Read detailed article: Proposed Exclusivity Club: Light-touch regulations for AIFs with accredited investors
Facilitating investments in REITs and InVITs
- Enhanced participation of Mutual Funds through re-classification of investment in REITs as ‘equity’ investments, InVITs to continue ‘hybrid’ classification
- Results in REITs becoming eligible for limits relating to equity and equity indices
- Entire limits earlier available to REITs and InVITs taken together now becomes available to InVITs only
- Rationale (see Consultation Paper)
- In view of the characteristics of REIT & InVITts and to align with global practice
- Expanding the scope of ‘Strategic Investor” & aligning with QIBs under ICDR
- Extant Regulations cover: NBFC-IFCs, SCB, a multilateral and bilateral development financial institution, NBFC-ML & UL, FPIs, Insurance Cos. and MFs.
- Scope amended to include: QIBs, Provident & Pension funds (Min Corpus > 25Cr), AIFs, State Industrial Development Corporation, family trust (NW > 500 Cr) and intermediaries registered with SEBI (NW > 500 Cr) and NBFCs – ML, UL & TL
- Relevance of Strategic Investors:
- Invests a min 5% of the issue size of REITs or INVITs subject to a maximum of 25%. Investments are locked in for a period of 180 days from listing
- Such subscription is documented before the issue and disclosed in offer documents
- Rationale: see Consultation Paper
- to attract capital from more investors under the Strategic Investor category
- to instil confidence in the public issue
SWAGAT-FI for FPIs: relaxing eligibility norms, registration and compliance requirements
- Registration of retail schemes in IFSCs as FPIs alongside AIFs in IFSC
- Both for retail schemes and AIFs, the sponsor / manager should be resident Indian
- Alignment of contribution limit by resident indian non-individual sponsors with IFSCA Regs
- Sponsor contributions shall now be subject to a maximum of 10% of corpus of the Fund (or AUM, in case of retail schemes)
- Overseas MFs registering as FPIs may include Indian MFs as constituents
- SEBI circular Nov 4, 2024 permitted Indian MFs to invest in overseas MFs/UTs that have exposure to Indian securities, subject to specified conditions
- SWAGAT for objectively identified and verifiably low-risk FIs and FVCIs
- Introduction of SWAGAT-FI status for eligible foreign investors
- Easier investment assess
- Unified registration process across multiple investment routes
- Minimize repeated compliance requirements and documentation
- Eligible entities (applicable to both initial registration and existing FPIs):
- Govt and Govt related investors: central banks, SWFs, international / multilateral organizations / agencies and entities controlled or 75% owned (directly or indirectly) thereby
- Public Retail Funds (PRFs) regulated in home jurisdiction with diversified investors and investments, managed independently: MFs and UTs (open to retail investors, operating as blind pools with diversified investments), insurance companies (investing proprietary funds without segregated portfolios), PFs
- Relaxation for SWAGAT-FIs
- Option to use a single demat account for holding all securities acquired as FPI, FVCI, or foreign investor units, with systems in place to ensure proper tagging and identification across channels
- Introduction of SWAGAT-FI status for eligible foreign investors
India Market Access – dedicated platform for current and prospective FPIs
To tackle the problem of global investors in accessing Indian laws and regulatory procedures across various platforms, citing the absence of a centralized and comprehensive legal repository.
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