GS-FPI is here... Here is what to expect...

The introduction of GS-FPI route brings along with it some key relaxations for FPIs looking to invest in India Government Bonds alone.

What are the Types?

• GS-FPI (ALL) and GS-FPI (FAR)

• GS-FPI (ALL) applies to those FPIs who would invest in all eligible India Government Bonds

• GS-FPI (FAR) or “Fully Accessible Route” is for those FPIs who intend to invest in India Government Bonds notified under the FAR route. For ISINs under FAR please refer to this link: https://www.rbi.org.in/Scripts/bs_viewcontent.aspx?Id=3876

What are the key relaxations?

• Material Change Notification: FPIs who opt for GS-FPI (both ALL or FAR) need to notify change in material information previously furnished to DDPs within 30 calendar days. This includes both Type I and Type II material changes.

  Note: Currently, FPIs are required to provide, to their DDPs; an initial intimation of Type I material change within 7 working days and submit complete supporting documents within 30 calendar days. This requirement eases the cost of compliance significantly for FPIs opting for GS-FPI, where all material change irrespective of Type I or Type II can be submitted within 30 calendar days.

• No Investor Grouping Information: FPIs who opt for GS-FPI (FAR) need not provide investor grouping information. This is a significant development on a compliance requirement very unique to India.

  Note: To understand more on the investor grouping requirements in India, please drop in a comment and we will provide a brief understanding on the topic.

• Pay Renewal Fees, No Need to Confirm on Change to KYC/Material Information: Currently, FPIs are required to provide Renewal Fees and a confirmation that there has been no change to the KYC and Material Information held on record with their DDP. This requirement has been diluted for GS-FPI (both ALL or FAR), where the GS-FPI will only be required to provide Renewal Fees.

• No NRI/OCI/RI investment restrictions: The restrictions with respect to NRI/OCI/RI investment limits shall not apply to GS-FPI (both ALL or FAR). The restrictions applicable to FPIs are as follows:

  • Contribution by a single NRI/OCI/RI must be less than 25% of the total FPI corpus.

  • Combined contribution of all NRIs/OCIs/RIs (aggregate) must be less than 50% of the total FPI corpus.

  • NRI/OCI/RI should not be in control for the FPI (however, there are relaxations available within the regulations to this pre-condition).

Note: To understand more about NRI/OCI/RI restrictions applicable to FPIs, please drop in a comment and we will provide a brief understanding on the topic including the exceptions.

How does one opt for GS-FPI?

Existing FPIs: Following transitions are permitted for existing FPIs:

1. FPI to GS-FPI (ALL)

2. FPI to GS-FPI (FAR)

3. GS-FPI (ALL) to GS-FPI (FAR)

4. GS-FPI (FAR) to GS-FPI (ALL)

5. GS-FPI (ALL or FAR) to FPI

An existing FPI is required to provide a declaration to their DDP to transition from FPI to GS-FPI (ALL or FAR). This could entail removing your current equity holdings and deactivating your Trading Code (i.e. Custodial Participant Code/CP Code).

If one opts to move from FPI to GS-FPI (FAR), then, additionally, the FPI can opt to have themselves removed from the investor group.

For transitioning between GS-FPI (ALL) and GS-FPI (FAR), FPIs are required to provide requisite declarations. Moving from GS-FPI (FAR) to GS-FPI (ALL) will entail providing investor grouping declarations and moving from GS-FPI (ALL) to GS-FPI (FAR) will entail removing non-FAR India Government Bonds and requesting removal from the investor grouping.

Transitioning back from GS-FPI (ALL or FAR) to FPI, will require completion of KYC refresh and additionally providing investor grouping details if transitioning from GS-FPI (FAR). Also, FPIs will need to get their trading code activated as well. All this can be done by providing a request in a prescribed format at the point of transition to your service provider.

There is no restriction on the number of times an FPI would like to make these transitions between routes.

New FPIs: New FPIs shall provide an additional declaration in case they would like to opt for GS-FPI. This will ensure that the relevant sections in the CAFs are muted and should not require the FPI to provide information in those sections (i.e. NRI/OCI/RI declarations and in the case of GS-FPI (FAR); the investor grouping section on the Common Application Form is muted). Note that your custodian will not apply for trading codes for GS-FPI registrations.

This newsletter is for information purposes only and should not be construed as advice.