- Samir Arora questions India's limits on NRI and OCI investments in foreign funds
- NRI investments face caps of 50% total and 25% per individual in foreign funds
- SEBI regulations restrict NRI/OCI holdings but exempt foreign citizens without OCI cards
Helios Capital founder Samir Arora has questioned the rationale behind India's limits on NRI and OCI investments in foreign funds, saying the curbs have reduced diaspora investment in the country and that no one can explain why they exist.
In a post on X on Tuesday, Arora listed a series of restrictions on how non-resident Indians invest in India through foreign funds. After almost every one, he added the same line: "Why- no one knows."
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"There are so many issues with NRI investments which have reduced their investments in India," Arora wrote. His target is the cap on how much NRI money a foreign fund can hold. "A fund cannot have more than 50% collective NRI money. Why- no one knows," he wrote.
The second is the limit on any single investor. "An individual NRI cannot own more than 25 pct of a fund- Why- no one knows."
The limits come from SEBI's Foreign Portfolio Investor Regulations, 2019. Any one NRI, OCI cardholder or resident Indian must contribute below 25% of an FPI's corpus. All such investors together must stay below 50%, and none of them can control the fund. The caps continue to apply to FPIs outside GIFT City.
Arora also questioned who the rule covers. "This applies to even OCIs (who are foreign citizens) but not to foreign citizens who don't have OCI: why- no one knows," he wrote.
In other words, a US citizen of Indian origin who holds an Overseas Citizen of India card counts against the cap. A US citizen without the card does not.
The Round-Tripping Argument
Arora said the usual explanation for the caps is round-tripping, where Indian residents' money is sent abroad and brought back as foreign investment. He does not accept it.
"General explanation is that Indians will do round tripping through NRIs/OCIs. Why will they do round tripping- no one knows. There is no difference in taxes whether u are India based or FII," he wrote.
He also questioned why the rules single out the diaspora. "Why Indian will do round tripping only through NRIs/OCIs and not foreign citizens- no one knows."
He also asked why residents who hold money abroad should be stopped from investing it back in India. "If some very small number of residents do have foreign money outside and they want to invest it back in India why stop them- no one knows," he wrote. "Also if a small percentage are doing something which authorities do not approve, why stop the route for a much much much much larger genuine population- no one knows."
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In a follow-up post on Wednesday, Arora added what he called "the most important" problem "we have encountered." "Most fund investors come via private banks," he wrote.
These banks, he explained, invest in funds for their clients through an omnibus account. The fund does not see the individual investors behind it, and relies on the bank having carried out anti-money laundering checks.
That makes the caps hard to police. "So who is supposed to check who is a foreigner and who is an NRI and if he is a foreigner does he have OCI card or not," Arora asked. "Banks check citizenship details when opening account but they don't ask these foreigners whether they are OCIs also."
He spelt out the consequence. "How to do this compliance- no one knows and therefore private banks don't even register funds unless large capacity is available due to very large institutional foreign money in the fund already which allows capacity for NRIs/OCIs."
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