Explained: SWAGAT-FI is a diplomatic passport for fleeing FIIs. How will it work?

Capital markets, Sebi has approved a new framework that could make life easier for foreign investors in Indian markets. The move comes at a time when foreign institutional investors (FIIs) have been heavy sellers this year, pulling out more than Rs 80,000 crore from equities since July.

The new mechanism, called SWAGAT-FI (Single Window Automatic and Generalised Access for Trusted Foreign Investors), is being described as a “diplomatic passport” for certain categories of foreign funds. It is designed to simplify entry, reduce paperwork, and ensure the long-term stability of foreign money in India.

Foreign investors manage assets worth over Rs 80 lakh crore in India, and relaxing entry rules will only add to the stability of the domestic markets. According to Sebi, over 70% of these assets are held by entities that would qualify under the framework.

How will it work?

Under the SWAGAT-FI framework, Sebi will classify some foreign investors as "low-risk" and give them a fast-track entry into Indian markets. These include sovereign wealth funds, central banks, pension funds, global insurance companies, and large mutual funds. In other words, investors that are either government-owned or heavily regulated in their home countries.

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Once eligible, these investors can register through a single window, which unifies multiple investment routes under one process. This means fewer duplications of KYC, compliance, or repeated documentation.

What are the key relaxations?

The new framework will also allow investors to use a single demat account for holding all securities, even across different investment routes. Further, there will be a Quicker conversion between FPI (Foreign Portfolio Investor) and FVCI (Foreign Venture Capital Investor) status.

The system will be rolled out in six months, once technical and operational changes are in place.

Why now?

By offering an easier route for long-term and government-linked investors, Sebi hopes to stabilise flows. If big, regulated funds can come in without procedural hurdles, they are less likely to stay away during bouts of market volatility.

What it means for markets

Market experts say SWAGAT-FI could bring more predictability to FII flows, especially at a time when India has been under the pump and in a volatile global scenario.

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"The approval of the SWAGAT-FI ensures that global funds can participate without structural limitations. Together, these measures reinforce India’s positioning as an investor-friendly destination while retaining strong regulatory safeguards," said Rohit Agarwal, CEO, Funds Business, Dovetail Capital.

If implemented well, SWAGAT may help counter-balance heavy short-term selling by attracting more sticky, long-term foreign capital.