SEBI Plans FPI Netting And A Fit Rule Shift After ₹71,746 Cr Outflows

After foreign investors pulled out over ₹71,746 crore from Indian equities this month, the Securities and Exchange Board of India (SEBI) is set to review a set of rule changes at its board meeting on Monday. The proposals focus on easing trading for foreign portfolio investors (FPIs), revising disqualification norms for intermediaries, and opening up investment structures.

What Changes Are Coming For FPIs?

The key proposal is allowing FPIs to settle trades on a net basis instead of the current gross system.

Right now, even if an FPI buys and sells shares of equal value on the same day, it must fund the full purchase amount. Sale proceeds cannot be used immediately. This locks up capital, even if only for a day.

The proposed shift allows investors to pay or receive only the net difference between buys and sells. This reduces funding needs and lowers forex costs, especially during high-volume days like index rebalancing.

The change comes at a time when overseas flows have turned volatile. Lower friction could help improve participation.

Fit And Proper Rules May Be Relaxed

SEBI is also set to revisit its ‘fit and proper’ criteria for brokers and senior management.

At present, the filing of an FIR or charge sheet leads to automatic disqualification. The regulator now wants to move that trigger to the stage of conviction. Industry participants have long argued that the current rule can damage careers even when cases do not hold up in court.

The proposed shift brings the framework closer to the principle of innocent until proven guilty. At the same time, delays in legal proceedings remain a concern.

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Other Changes On The Table

The board is also expected to ease rules for alternative investment funds (AIFs), especially for schemes that are stuck due to legal or tax issues and want to wind up.

For Infrastructure Investment Trusts (InvITs), SEBI is expected to allow continued holding of assets after concession periods end and permit limited exposure to under-construction projects. It may also widen the pool of liquid mutual funds where surplus money can be parked.

Another proposal looks at social impact funds. The minimum investment is expected to be cut sharply from ₹2 lakh to ₹1,000 to attract retail investors.

Also, the board is likely to revisit stricter disclosure norms on conflict of interest for its members and staff, an issue that was deferred earlier.

Taken together, the proposals point to a clear direction: reduce friction, widen access, and respond to falling foreign inflows. The real test will be whether these changes are enough to bring investors back.

Sources

Economic Times

Moneycontrol