New Indian Route for Investments by Cyprus Funds

On 14 June, India's Ministry of Finance issued an order stating that the Republic of Cyprus is now classified as a "Category I" country for the purposes of Regulation 5 (a)(aiv) of SEBI (Foreign Portfolio Investors) Regulations.

If you want to learn more about Cyprus funds, please contact Christina, email cyprus@tridenttrust.com or make an enquiry through our enquiries form.

According to these regulations, appropriately regulated funds and unregulated funds whose investment manager is suitably regulated and registered as a "Category I Foreign Portfolio Investor" are subject to lighter KYC requirements, can obtain higher trading limits and are eligible to invest in Offshore Derivative Instruments.

Cyprus is a uniquely competitive entry point to EU-regulated fund management solutions and a portal for investments outside the EU. As a member of the wider EU and Eurozone community, Cyprus guarantees investors' safety and stability, while also providing market access to EU Investors.

Foreign Portfolio Investment (FPI)

FPI is an investment route by non-residents in Indian securities including shares, government bonds, corporate bonds, non-convertible debentures, units of business trusts, etc. The class of investors who make an investment in these securities is known as Foreign Portfolio Investors.

FPIs can be registered in one of the below categories:

Category I which includes entities from Financial Action Task Force (FATF) member countries or from any country specified by the Central Government by an order or by way of an agreement or treaty with other sovereign Governments, such as:

• Appropriately regulated funds;
• Unregulated funds whose investment manager is appropriately regulated and registered as a Category I FPI;
• University related endowments of such universities that have been in existence for more than five years.

Accordingly, funds coming from those nations which are non-FATF compliant can also obtain Category I FPI registration if the Central Government approves.

Category II which includes regulated broad-based funds such as mutual funds, investment trusts, insurance/reinsurance companies. It also includes regulated banks, asset management companies, portfolio managers, investment advisors, and managers.

Category III which includes those who are not eligible in the first two categories, such as endowments, charitable societies, charitable trusts, foundations, corporate bodies, trusts, individuals.

Cyprus Funds & Category I FPI Advantages

Cyprus based funds can now be registered for a Category I FPI License and therefore benefit from the numerous advantages available to Category I FPIs, including:

Exemption from Indirect transfer provisions

Investors in Category I FPIs are exempted from the applicability of “Indirect Transfer” provisions under the Indian Income Tax Act, which are otherwise applicable to an overseas investor upon transfer of shares / interest in an overseas entity with assets in India.

Regulatory advantages

• Issue/ invest in Offshore Derivative Instruments (such as Participatory Notes), after compliance with the Know Your Client (KYC) norms as specified by SEBI;
• Lesser KYC documentation required by SEBI as compared to Category II FPI;
• Higher position limits for investing in derivatives.