To attract more capital inflows, a panel appointed by Sebi on Wednesday suggested a slew of measures including simplified registration process for foreign investors and classifying them into a single category.
Besides, the committee headed by former Cabinet Secretary K M Chandrasekhar, suggested that Know Your Client rules should be based on the risk profile of investors.
The recommendations from the panel come at a time when the government is exploring ways to lure more foreign capital into the country and strengthen the falling rupee.
According to the committee, single overseas investments of more than 10 per cent in a company should be considered as Foreign Direct Investment while those less than 10 per cent should be classified as foreign portfolio investment.
Existing FIIs, Sub Accounts and Qualified Foreign Investors should be merged into a new investor class called 'Foreign Portfolio Investor'.
"In a significant move to make the procedure much simpler, the Committee recommended that prior direct registration of FIIs and Sub Accounts with Sebi should be done away with," Sebi said on Wednesday.
Instead, the new class of investors should be allowed to register themselves with Designated Depository Participants.
The committee on 'rationalisation of investment routes and monitoring of foreign portfolio investments' said that KYC norms for investors should be based on their risk profiles.
"With the simplification of procedures in KYC/account opening and onboarding etc., the committee believes it will make the experience for FPI of entering into India more pleasuresome and smooth, resulting in increasing inflows into India," Sebi said.
Besides Chandrasekhar, other committee members include representatives from the government, RBI and market participants.
As per the committee, the aggregate investment limit for FPI should be at 24
Meanwhile, investments from Non Resident Indians and Foreign Venture Capital Investors should remain as separate classes.
The panel has suggested that the 'present list of nine sectors should be considerably expanded' for FVCIs.
"Alternately a negative list may be announced by Government of India so that rest of the sectors are opened for VCF activity," it added.
According to the panel, the risk profile of overseas investors should be classified into three types -- low risk, moderate risk and high risk.
Government and its related entities such as foreign central banks, sovereign wealth funds and multi-lateral organisations, among others, should be considered as low risk investors.
In the 'moderate risk' category, banks, asset management companies, mutual funds, pension funds, investment funds and others should be included.
All other entities should be categorised as 'high risk'. "The approach to KYC will be risk based.
The documents needed for registration and onboarding would be the simplest for Category I (low risk) and the most stringent for Category III (high risk)," Sebi said.
Further, the panel has said that submission of personal identification documents should be done away with for investors coming under low and moderate risk categories.
With regard to issuance of Offshore Derivative Instruments (ODIs)/Participatory Notes (PN), which are -- popular among foreign investors, the panel said that high risk entities should not be allowed to issue such instruments.
"Further, the ODI/ PN issuer FPIs will continue to report directly to Sebi, as prescribed by Sebi," Sebi said.
In October 2012, the Sebi Board had decided to prepare a draft guideline based on the guidance of the Working Group on Foreign Investment in India, for consideration of the Government of India and to implement the same had set up the committee.
