SEBI Imposes ₹50 Lakh Penalty on 3 FPIs for Violating Short-Term Investment Limits

The Securities and Exchange Board of India (SEBI) has imposed penalties totalling ₹50 lakhs on 3 foreign portfolio investors (FPIs) for exceeding the prescribed limits on short-term investments in debt securities.

In 3 separate orders issued on Monday, SEBI levied a fine of ₹20 lakh each on Nexpact Ltd and AIRD Investment Commercial LLC, while Aviator Global Investment Fund was fined ₹10 lakh.

SEBI’s Investigation and Findings 

The penalties follow inspections conducted by SEBI on Orbis Financial Corporation, the custodian of these FPIs, for the financial year 2021-22 (FY22). During the inspection, the regulator discovered that the investments made by the 3 entities did not comply with the permissible residual maturity limits for debt securities applicable to FPIs as of March 31, 2022.

Following this observation, SEBI conducted a broader examination covering the period from April 2018 to November 2023 to assess compliance with FPI regulations and Reserve Bank of India (RBI) norms.

Breach of Investment Limits

According to RBI regulations, an FPI’s short-term investments in any category should not exceed 30% of its total investment. These limits are required to be strictly monitored and adhered to by FPIs to ensure compliance.

SEBI found that AIRD Investment Commercial LLC had exceeded the 30% short-term investment cap across multiple periods, with violations persisting from December 19, 2021, to November 2023.

“The notice (AIRD Investment Commercial) was holding investments in short-term debt securities exceeding the prescribed limit of 30% for 562 days, which is almost two years,” SEBI stated in its order.

Similarly, Nexpact Ltd breached the short-term investment limit for a continuous period of 586 days, from December 2021 to July 2023. The company admitted that the breach was due to oversight and was immediately rectified. However, SEBI noted that the violation was repetitive and lasted for almost two years, warranting a penalty.

Aviator Global Investment Fund was found to have failed to maintain short-term investments within the prescribed threshold for 373 days between September 2021 and October 2022.

SEBI’s Rationale for Penalties 

In its orders, SEBI emphasised that maintaining compliance with investment limits is critical for market stability and transparency. The prolonged nature of the violations, despite regulatory norms being in place, led to the imposition of monetary penalties.

The regulator’s action underscores the importance of FPIs adhering to investment regulations to ensure compliance with SEBI and RBI norms. The penalties serve as a reminder for foreign investors to maintain due diligence in managing their portfolios within regulatory frameworks.

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