Foreign Portfolio Investors and Their Prospect in IndiaMay 3, 2018
Foreign Portfolio Investment (FPI) is a channelized scheme for non-residents who are willing to invest in Indian securities, shares, government bonds, corporate bonds, convertible securities, infrastructure securities, and more. FDI in India is induced by differences in equity price scenario, bond yield, growth prospects, interest rate, dividends, or rate return on capital in the country’s financial assets.
According to the stipulation done by the Security and Exchange Board of India (SEBI), any equity investment made by non-residents which is less than or equal to 10 percent of capital in a company is portfolio investment. While above this demarcation the investment is counted as Foreign Direct Investment, Foreign Portfolio Investors must note that all FPI made at once, cannot acquire more than 24 percent of the paid capital of an Indian company. Also, as per SEBI guidelines and regulations, Foreign Portfolio Investors are not allowed to invest in unlisted shares. However, if one intends to invest in unlisted entities, it will be treated as Foreign Direct Investment (FDI).
Who can be Foreign Portfolio Investors?
Foreign Portfolio Investors include investment groups of Foreign Institutional Investors (FIIs), Qualified Foreign Investors (QFIs), and subaccounts. NRIs don’t fall under FDI.
After new guidelines authorized by SEBI, the Reserve Bank of India (RBI) stipulated that FPI includes asset management companies, banks, pension funds, mutual funds, and investment trusts as nominee companies, incorporated/institutional portfolio managers or their power of attorney holders, university funds, endowment foundations, and charitable trusts. Sovereign Wealth Funds are also regulated as FIIs.
Who are Foreign Institutional Investors?
According to SEBI guidelines, “an FII is an institution established or incorporated outside India which proposes to make investments in India in securities”. FII can include institutions like mutual funds, insurance companies that are registered under SEBI regulation, 1995.
Who are Qualified Foreign Investors?
QFI is an individual or an association who is a foreign resident, in compliance with the Financial Action Task Force, and a signatory to the International Organisation of Securities Commission. The QFIs are allowed to directly invest in Indian Equity Market. The idea is to widen the class of investors, attract more foreign funds, and reduce market volatility to deepen the Indian capital market.
According to the latest circular issued by the securities regulator, SEBI, investments made by two or more foreign entities with a common beneficiary will be treated as a single FPI entry.
“In case, the same set of beneficial owners are constituents of two or more FPIs and such investor(s) have common beneficial ownership of more than 50 percent in those FPIs, all such FPIs will be treated as forming part of an investor group…,” SEBI said in the circular.
“… the investment limits of all such entities shall be clubbed at the investment limit as applicable to a single foreign portfolio investor.”