Foreign Portfolio Investor (FPI) is a person who invests in the capital market through instruments like equity shares, debentures, bonds, and mutual funds. FPI can be individuals or institutions.
The FPIs are required to register with Sebi or deposit their securities with a Depositary before they can invest in any security. And this registration is done in Form F-II/F-III.
Foreign Institutional Investors (FIIs) are among the biggest investors in India. They have been allowed to invest up to 49% of their portfolio holdings in Indian companies.
Any foreign investor who has registered his securities with SEBI under section 12(3) of SEBI Act 1992, may invest on the stock exchange through stocks, options, and futures contracts traded on them by buying/selling such contracts for delivery at a fixed price on a specified date in future.
Foreign portfolio investors are those who invest in India through the FPI route. FPIs can be categorized into two types:
- Non-Resident Indians (NRI)
- Foreign Institutional Investors (FIIs)
Categories of Investment under Foreign Portfolio Investor Registration
- Category I: Equity Securities (including shares and preference shares) of Indian companies listed on any stock exchange in India or outside India. It also includes units of mutual funds registered with the Securities and Exchange Board of India (SEBI) which invest in such securities.
- Category II: Debt instruments such as corporate bonds, debentures, and commercial papers issued by Indian companies, including those listed on any stock exchange in India or outside India. It also includes notes, bills, treasury bills, and certificates of deposit issued by scheduled commercial banks in India.
- Category III: This category includes any investors who are not protected by the FPI categories I or II. This would include HNI, individual investors, family bonds, and corporate bonds.
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The benefits of registering as an FPI are given below:
- You can buy shares, debentures, mutual funds, and other financial instruments from any listed company in India without any restriction from the government or Sebi (security and exchange board of India).
- You will enjoy complete freedom regarding the timing of your investment and selling decisions. You do not need to disclose your intentions beforehand for buying or selling shares, bonds, or mutual fund schemes because you are allowed to invest in any company at any time of your choice without prior permission from any authority whatsoever.
- You will be able to carry forward losses made by you during one financial year into another financial year if they remain unutilized at the end of that particular financial year (otherwise known as the carrying forward rule). This means that if you make losses during one financial year but do not have enough cash reserves
For an investor to register as a FPI, he/she should fulfill the following criteria:
- Depending on the board’s standards, an Indian Resident, NRI, or OCI may be eligible.
- The applicant must reside in a foreign country that is a member of and signatory to the Multilateral MOU of the International Organization of Securities Commissions. If the applicant is not this, he must be a signatory to the board’s Bilateral MOU.
- The applicant’s country’s central bank must be a member of the Bank for International Settlements.
- The applicant must provide a minimum of 25% of the corpus.
- According to the United Nations Security Council, the applicant must not be subject to any sanctions (UNSC).
- The applicant cannot be a citizen of any of the Financial Action Task Force’s grey-listed member countries (FATF).