Netting of Funds for FPI

SEBI has proposed netting of funds for outright cash-market transactions by Foreign Portfolio Investors (FPIs).

About Foreign Portfolio Investment (FPI)

• Foreign Portfolio Investment refers to passive investment by foreign investors in financial assets such as equities and bonds of another country, without management control.
• Key Features
• • It includes equity shares, debt securities, American Depositary Receipts, Global Depositary Receipts, Mutual Funds, and Exchange Traded Funds (ETF)
  • No ownership or control over management (unlike FDI)
  • Highly liquid and market-linked, making it volatile and sensitive to global risk sentiment.
  • It is recorded in the Capital Account of Balance of Payments.

Netting of Funds for FPI

• Netting of funds allows FPIs to use sale proceeds to finance purchases on the same day, requiring settlement only of the net fund obligation.
• Impact of Allowing Netting of Funds for FPIs

• • Improved Liquidity Efficiency: Netting reduces gross funding requirements, easing liquidity stress, especially during index rebalancing days.
  • Lower Cost of Capital: By minimising temporary funding needs, FPIs face lower borrowing and transaction costs, improving India’s market attractiveness.
  • Market Stability Safeguards: Exclusion of intra-day buy–sell (non-outright) transactions from netting ensures large FPIs cannot distort markets; security settlement remains gross.

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Other SEBI Initiatives 

• SWAGAT–FI Framework: Single Window Automatic and Generalised Access for Trusted Foreign Investors simplifies registration and compliance for Foreign Portfolio Investors and Foreign Venture Capital Investors.
• Unified Registration System: SEBI proposed a unified registration across investment routes to minimise duplication of documentation and repeated compliance requirements for foreign investors.
• Reduction in Compliance Burden for FPIs: Eligible Foreign Portfolio Investors such as sovereign wealth funds, pension funds, and central banks receive eased procedural norms.
• Risk-based Regulation for FPIs: SEBI continues adopting differentiated regulatory requirements based on investor risk profile to balance market access and systemic stability.
• Reforms in Settlement Mechanism: SEBI is streamlining settlement processes to improve liquidity, transparency, and operational efficiency in Indian capital markets.

SEBI’s netting reform enhances liquidity efficiency, lowers transaction costs, and strengthens investor confidence, while preserving market stability and reinforcing India’s position as a globally competitive capital market.

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