What are the steps that Foreign Portfolio Investors need to follow to start investing in India? Is it the same as account opening for individuals?

While the process for account opening has been made substantially simpler for FPIs in the last few years, it still remains a lot more complex than for individuals as there are higher standards of compliance on ownership, structures, sub-accounts, capital adequacy etc. Here are the key steps to a FPI to open an account and start trading in India.

Opening an Account

For investing in India you would need to be registered as an FPI with SEBI, the regulator. The requirements for registration and commencement of trading are detailed as under:

1. The first step is to appoint a Legal Representative & Choose a DDP. Appoint a legal representative in India to fill out the forms required by the regulatory authorities. The role of legal representative can be played by any financial institution authorized by the Reserve Bank of India. Then the DDP needs to be appointed and FPIs can choose DDP from the list of authorized DDPs available with SEBI website.

2. The second step is to appoint a Tax advisor. A tax advisor will help the FPI to comply with all Tax obligations that will arise from your activities in India as also advise on the best possible structure to reduce the tax burden on the FPI entity.

3. The third step is to appoint a Domestic Custodian. Appoint a domestic custodian and before making any investments in India, enter into an agreement with the domestic custodian providing for custodial services in respect of securities. Here, the domestic Custodian means any entity registered with SEBI to carry on the activity of providing custodial services in respect of securities.

4. The next step is to appoint a designated Bank. Once the FPI is granted registration as an FPI, they will need to appoint a Designated Bank. The Designated Bank will open and maintain a foreign currency account and/or a Non Resident Special Rupee Account for the FPI. Designated Bank means any bank in India which has been authorized by the Reserve Bank of India to act as a banker to FPIs and such list is available with the RBI on its website.

5. The fifth step is to appoint a trading member or a broker to execute their trades on the recognized stocks exchange and this done through a rigorous internal process that is called empanelment. A Trading member will execute trades for the FPI. An FPI can have multiple TM’s and they can distribute the trades based on the performance of the trading members.

6. The sixth and a very important step is to appoint a clearing member. Clearing member does the confirmation of trades. Clearing can be done through single clearing member. The FPI will have to get the CM–CP agreement executed with the CM to get the CP Code. CP code facility (can use existing CP code) or signing of agreement.

7. The last step is the appointment of a Compliance Officer. Every FPI is required to appoint a compliance officer who shall be responsible for monitoring the compliance of the Act, rules and regulations, notifications, guidelines, instructions etc. issued by the SEBI, RBI or the Central Government or any other relevant regulatory body from time to time.

The above covers the basic approach to FPI accessing capital markets in India.