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Foreign Portfolio Investment in India


Introduction: Foreign Portfolio Investment

Exchange Management act) 2000 defines foreign portfolio investment as buying and selling of shares, convertible debentures, of Indian companies, and units of domestic mutual funds at any of the Indian stock exchanges.

It is the indirect holding of securities such as foreign stocks, bonds, or other financial assets, none of which entails active management or control of the securities issued by an investor.

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How Foreign Portfolio Investment Benefits The Real Sector of The Economy:

  • The flow of FPI can provide a developing non-debt-creating source of foreign investment.
  • FPI can induce financial resources to flow from capital-abundant countries, where returns are low, to capital scare countries where expected returns are high.
  • FPI affects the economy through its various linkage effects via to domestic capital market.

(FPI) means a person who satisfies the eligibility criteria prescribed under regulation IV and has been registered under chapter III of this regulation, which shall be supposed to be an intermediary in terms of the provisions of the act.

According to economics, foreign portfolio investment is the entry of funds into a country where foreigners deposit money in a country's bank or make purchases in the country’s stock and bond markets, sometimes for speculation.

No person shall buy, sell or otherwise deal in securities as a foreign investor unless it has obtained a certificate granted by a designated depository participant on behalf of the board.

Provided that any foreign institutional investor or qualified foreign investor who holds a valid certificate of the regulation shall be deemed to be a foreign portfolio investor till the expiry of the block of three years for which fees have been paid as per the securities and exchange board of India (foreign institutional investors) regulation 1995.

Foreign Portfolio Investment does not have direct control over the securities or businesses. This means that Foreign Portfolio Investment tends to be more liquid and less risky than Foreign Direct Investment (FDI). FPI (Foreign portfolio investments) also tend to have a shorter time frame for returns than foreign direct investments.

Foreign Portfolio Investments give investors a larger credit base because they are able to access credit in foreign countries where they have large amounts of investment. Profits from the Exchange rates: If an investor has an FPI in a foreign country with a stronger currency than their own country the difference in exchange rates between the two countries can benefit the investor's Access to a larger market. For example, the market is much more competitive in the United States of America than in other less developed economies. Investors can take advantage of the less competitive markets internationally by using these foreign portfolio investments.

Eligibility Criteria of Foreign Portfolio Investor:

If an applicant satisfies the following condition then the designated depository participant shall consider an application for registration as Foreign Portfolio Investor:

  • An applicant is a person non-resident in India.
  • The applicant is a resident of a country whose securities market regulator is a signatory to an international organization of securities commission’s multilateral memorandum of understanding (appendix signatories) or a signatory to bilateral. Memorandum of understanding with the board.
  • The applicant is a bank, is a resident of a country whose central bank is a member of a bank for international settlements.
  • The applicant is not resident in a country identified in the public statement of the financial action task force as:
  1. A jurisdiction having a strategic Anti-money laundering or combating the financing of terrorism deficiencies to which countermeasures apply or
  2. A jurisdiction that has not made sufficient progress in addressing the deficiencies or has not committed to the action plan developed with the financial action task force to address the deficiencies.
  • The applicant is not a non-resident Indian,
  • The applicant is legally permitted to invest in the securities outside of the country of its incorporation or establishment or place of business
  • The applicant is authorized by MOA or AOA or the agreements to invest on its own behalf of its client.
  • The applicant has sufficient experience, a good track record, is professionally competent, financially sound, and has a generally good reputation of fairness and integrity.
  • The grant of a certificate to the applicant is in the interest of the development of the securities market,
  • The applicant is a fit and proper person based on the criteria specified.
  • Any other criteria specified by the board from time to time.

Categories of Foreign Portfolio Investment

Category I: This Shall Include

Government and Government related investors such as central banks, governmental agencies, sovereign wealth funds, and international or multilateral organizations or agencies.

Category II: This Shall Include

  • Appropriately regulated broad-based funds such as mutual funds, investment trusts, insurance/reinsurance company
  • An appropriately regulated person such as banks, asset management companies, investment managers/advisors, portfolio managers
  • Board-based funds that are not appropriately regulated.
  • University funds or pension funds
  • University-related endowments already registered with SEBI as FIIs or sub-accounts

Category III: This Shall Include

all the others not eligible under categories I and II are foreign portfolio investors such as endowments, charitable societies, charitable trusts, foundations, corporate bodies, trusts, individual and family offices.

Suspension, Cancellation, or Surrender of The Certificate

  • Subject to compliance with the provisions of the act, these regulations, and the circulars issued thereunder, the registration granted by the designated depository participant on behalf of the board under these regulations shall be permanent unless suspended or canceled by the board or surrendered by the foreign portfolio investor.
  • Suspension and cancellation of registration granted by the board under these regulations shall be dealt with in the manner as provided in chapter V of the securities and exchange board of India (intermediaries) regulation, 2008.
  • Any foreign portfolio investor desirous of giving up its activity and surrendering the certificate of registration may make a request for such surrender to the designated depository participant who shall accept the surrender of registration after obtaining approval from the board to do so.
  • While accepting the surrender of registration under sub-regulation (3), the designated depository participant may impose such conditions as may be specified by the board and such person shall comply with such conditions.

A Foreign Portfolio Investor Shall Invest Only in The Following Securities, Namely:

  • Share, debentures, and warrants of the company listed or to be listed on the recognized stock exchange in India.
  • Unit schemes floated by domestic mutual funds, whether listed on the recognized stock exchange of India.
  • Units of schemes by the collective investment scheme.
  • Derivatives traded on the recognized stock exchange.
  • Treasury bill and dated government securities.
  • Commercial papers issued by an Indian company.
  • Rupee-denominated credit-enhanced bonds.
  • Securities receipts issued by assets Reconstruction Company.
  • Perpetual debt instruments and debt capital instruments as specified by the Reserve Bank of India.
  • Listed and unlisted non-convertible bonds/ debentures issued by an Indian company in the infrastructure sector.
  • Non-convertible debentures or bonds issued by a non-banking financial company.
  • Indian depository receipt

Such other instruments are specified by the board from time to time.

Foreign Portfolio Investor Registration

It is regulated or supervised by the securities market regulator or the banking regulator of the concerned foreign jurisdiction in order to faciliate the foreign people in National stock market of various portfolio.

Foreign Portfolio Compliance

Registered institution/manager design and executing the portfolio (specifically collection of securities) of foreign in India stock market required to maintain the records and report the activity report to regulator on time. Add done.

Foreign Direct Investment (FDI) Approval

The investment that required Government Approval shall file an application via its designated portal for submission of plan and proposal for approval.

This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not corpseed, and have not been evaluated by corpseed for accuracy, completeness, or changes in the law.


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