Eligiblity of Mauritius Based Funds



Ryan Allas

In a welcome boost to the Mauritius International Financial Centre and to the Indian securities market, the Minister of Finance of India has amended the Securities and Exchange Board of India (SEBI) Foreign Portfolio Investors (FPI) Regulations 2019 (‘The Regulations’) so that Mauritius Funds can now be registered as Category I FPI in India.


Previously, SEBI had classified FPIs in India into three categories. SEBI issued new regulations in October 2019, and under these regulations the number of categories was brought to just two (Category I and Category II). Until last week, only funds registered in a Financial Action Task Force (FATF) member country were eligible to be registered as a Category I FPI.

On 7 April 2020, SEBI amended the regulations so that FPIs based in those countries which are not members of the FATF may obtain a Category I licence subject to Indian government approval. On 13 April 2020, the Minister of Finance of India approved foreign portfolio investors (FPIs) registered in Mauritius to be licenced as Category I investors.

Consequently, funds established in Mauritius are fully eligible for registration as Category I FPI in India.

Our analysis

The main benefits that will be enjoyed by FPIs registered in Mauritius are as follows:

From a regulatory perspective

  • FPIs registered in Mauritius can continue to issue offshore derivative instruments (ODIs)

Under the new SEBI regulations only Category I FPIs may issue ODIs such as participatory notes.

  • Higher position limits in equity stock and equity index derivatives

The position limit for Category I FPI is 20% of market wide position limits of stock derivative as opposed to 10% for Category II investors and Higher of INR 5 billion or 15% of total open interest of the market in index derivatives as opposed to Higher of INR 3 billion or 10% for Category II investors.

  • Lower KYC requirements 

FPIs registered in Mauritius will benefit from less stringent KYC procedures. On the other hand, FPIs coming from countries like Cayman Island will continue to be subject to more stringent KYC regulations.

From a tax perspective

Under the Indian Income Tax Act, sale of shares in non-resident funds that have deployed more than 50% of their investments in India may be subject to indirect capital gains tax in India between 10% to 40%.

Prior to the Budget 2020, Category I and Category II investors were exempt from capital gains tax on indirect transfer of shares. Following the Budget 2020, the exemption was granted to existing Category II FPIs only (registered prior to October 2019) which were grandfathered while all Category I investors were exempted.

Category II FPIs registered with SEBI after October 2019 are not specifically exempted, and may be subject to capital gains tax on indirect transfer.

Mauritius FPIs should now be specifically exempted from the indirect transfer provisions under Indian domestic law.


Mauritius is the second largest source of FDI in India after Singapore and this announcement will only reinforce the Mauritian route for investment in India.

This amendment is a key development in reaffirming Mauritius as the holding location of choice for international investments.

Feel free to reach out to our Tax Team and our Fund team in case of any queries you may have.