Daily Current Affairs : 12-September-2024

The Securities and Exchange Board of India (SEBI) has recently updated the regulations governing the registration and eligibility of Foreign Venture Capital Investors (FVCIs). These adjustments aim to streamline the process of registering and managing FVCIs while ensuring better monitoring and compliance.

New Registration Process for FVCIs

Under the updated framework, SEBI has introduced a more organized system for registering FVCIs, which will now be managed by designated depository participants (DDPs). This approach is similar to the system already in place for Foreign Portfolio Investors (FPIs).

  • Role of DDPs:
    • Applicants must engage with a DDP for registration.
    • The DDP will act as the custodian for FVCIs, helping manage their investments.
    • The DDP will also be responsible for reporting and monitoring the FVCI’s activities to SEBI.

Key Updates in the New Rules

The updated regulations introduce several important changes for FVCIs, particularly regarding their investment management and eligibility.

  • Demat Form Requirement:
    • Starting January 1, 2025, all FVCIs will be required to hold their investments in demat (dematerialized) form.
    • This will make the process of holding, transferring, and tracking investments more efficient and transparent.
  • Eligibility of Contributors:
    • Resident Indians (RIs), Non-Resident Indians (NRIs), and Overseas Citizens of India (OCI) can contribute to FVCIs.
    • However, there are restrictions:
      • No single individual can contribute more than 25%.
      • The combined contribution of all RIs, NRIs, and OCIs should not exceed 50% of the total fund.
  • Appointment of Domestic Custodian:
    • FVCIs are now required to appoint a domestic custodian.
    • This custodian will be responsible for monitoring the investments and ensuring compliance with SEBI’s regulations.

Important Points:

  • SEBI’s Updated Framework: SEBI has updated the regulations for the registration and eligibility of Foreign Venture Capital Investors (FVCIs) to improve monitoring and compliance.
  • Role of Designated Depository Participants (DDPs):
    • FVCI registration will now be handled by DDPs, similar to the Foreign Portfolio Investors (FPIs) system.
    • DDPs will also act as custodians for FVCIs and manage their investments.
    • DDPs are responsible for reporting and monitoring FVCI activities to SEBI.
  • Demat Form Requirement:
    • Starting January 1, 2025, FVCIs must hold their investments in demat (dematerialized) form for better efficiency and transparency in tracking investments.
  • Eligibility of Contributors:
    • Resident Indians (RIs), Non-Resident Indians (NRIs), and Overseas Citizens of India (OCI) can contribute to FVCIs.
    • Restrictions:
      • No single contributor can invest more than 25%.
      • Combined contributions from RIs, NRIs, and OCIs must not exceed 50% of the total fund.
  • Appointment of Domestic Custodian:
    • FVCIs must appoint a domestic custodian responsible for monitoring investments and ensuring compliance with SEBI regulations.
  • Objective: The changes aim to enhance transparency, improve regulatory oversight, and ensure better management and compliance of FVCIs operating in India.

Why In News

SEBI has updated the rules for the registration and eligibility of Foreign Venture Capital Investors (FVCIs) to enhance transparency, improve regulatory oversight, and streamline the process for both investors and regulatory bodies. These changes are designed to foster a more organized and compliant environment for foreign venture capital investments in India.

MCQs about SEBI Revamps FVCI Registration and Compliance Rules

  1. Who will be responsible for managing the registration process of Foreign Venture Capital Investors (FVCIs) under the new SEBI rules?
    A. SEBI directly
    B. Designated Depository Participants (DDPs)
    C. Domestic custodians
    D. Foreign Portfolio Investors (FPIs)
    Correct Answer: B. Designated Depository Participants (DDPs)
    Explanation: Under the updated framework, the registration and management of FVCIs will be handled by Designated Depository Participants (DDPs), similar to the system for Foreign Portfolio Investors (FPIs). DDPs will also act as custodians for FVCIs.
  2. What is the new requirement for FVCIs starting January 1, 2025?
    A. FVCIs must appoint a foreign custodian.
    B. FVCIs must hold investments in demat form.
    C. FVCIs must restrict their total contribution to 50%.
    D. FVCIs must reduce their contributions to under 25%.
    Correct Answer: B. FVCIs must hold investments in demat form.
    Explanation: Beginning January 1, 2025, FVCIs are required to hold their investments in demat (dematerialized) form to ensure greater efficiency and transparency in managing their investments.
  3. What is the maximum contribution limit for Resident Indians (RIs), Non-Resident Indians (NRIs), and Overseas Citizens of India (OCI) in an FVCI?
    A. 10%
    B. 25% per individual, 50% combined
    C. 50% per individual, 100% combined
    D. 25% combined
    Correct Answer: B. 25% per individual, 50% combined
    Explanation: The new SEBI rules state that no single individual from RIs, NRIs, or OCIs can contribute more than 25%, and their combined contribution should not exceed 50% of the total FVCI fund.
  4. What is the role of the domestic custodian appointed by an FVCI under the new SEBI rules?
    A. To handle all financial transactions of the FVCI.
    B. To monitor the investments and ensure compliance with SEBI regulations.
    C. To register the FVCI with SEBI.
    D. To manage the FVCI’s overseas investments.
    Correct Answer: B. To monitor the investments and ensure compliance with SEBI regulations.
    Explanation: The new regulations require FVCIs to appoint a domestic custodian who will be responsible for monitoring the investments and ensuring that the FVCI complies with SEBI’s rules and regulations.

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