The Securities and Exchange Board of India is shortly expected to allow Non-Resident Indian fund managers to manage the investment portfolios of foreign institutional investors.

"We are looking into the issue because we have received many requests. We will permit NRI fund managers who have at least a year's experience in managing FII funds as long as they do not put their proprietary funds into it," confirmed a senior Sebi official.

Sources said fund managers are regulated in their home countries and the restrictions on investing proprietary money were aimed at ensuring that there is little scope for manipulation besides putting checks on possible round-tripping of funds.

The move would overturn a 2000 provision that was inserted in the Securities and Exchange Board of India (FII Regulations), prohibiting NRIs and overseas corporate bodies from investing as FII sub-accounts or as FIIs.

Sebi has already registered several funds that are managed by people of Indian origin. The restriction is only on OCBs and NRIs registering themselves as FIIs.

An amendment to the regulations removing this prohibition will allow several hedge funds to register as FIIs or sub-accounts.

Some of these funds have sought Sebi permission to invest in India as FIIs but their applications have not been processed. In certain cases the regulator has sought clarifications since NRI money or managers were involved.

"There are quite a few applications from investment advisors where NRIs account for a majority stake in the entity. These have been put on hold. An amendment will send a clear message to NRI-sponsored fund management companies that they can expect to receive FII registration without any hassle if they comply with criteria prescribed in the regulation," said Suneet Barve, a senior associate with law firm Nishith Desai Associates.

"I believe Sebi ought to permit NRIs and investment management companies owned by NRIs to be registered as FIIs. There is no reason to discriminate against investment companies that are owned by people of Indian origin," said Somasekhar Sundaresan, a partner with legal firm J Sagar Associates.

"If it is investment of NRI funds that is felt undesirable, Sebi can simply get such NRI-owned investment management companies to undertake that they will not invest their own funds through the FII route," he added.