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Foreign Portfolio Investor (FPI)

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In India, the term “Foreign Portfolio Investor” refers to FIIs or their sub-accounts, or qualified foreign investors (QFIs) who are permitted to hold upto 10% stake in a company.


The term FPI was defined to align the nomenclature of categorizing investments of foreign investors in line with international practice. FPI stands for those investors who hold a short term view on the company, in contrast to Foreign Direct Investors (FDI). FPIs generally participate through the stock markets and gets in and out of a particular stock at much faster frequencies. Short term view is associated often with lower stake in companies. Hence, globally FPIs are defined as those who hold less than 10% in a company. In India, the hitherto existing closest possible definition to an FPI was Foreign Institutional Investor.

In the Union Budget 2013-14, announced on 28 February 2013, vide para 95, Honourable Finance Minister announced his intention to go by the internationally accepted definition for foreign investors.

Prior to this, in December 2012, SEBI had constituted a “Committee on Rationalization of Investment Routes and Monitoring of Foreign Portfolio Investments” under the chairmanship of Shri K. M. Chandrasekhar with a view to rationalize/harmonize various foreign portfolio investment routes and to establish a unified, simple regulatory framework. The Committee had submitted its report in June, 2013 to the Government of India.

Based on the committee report, on 7th January, 2014 the FPI Regulations, 2014 were notified in the Gazette of India.

The new FPI Regime came into effect from 1st June, 2014. The FAQs on FPI Regulations can be seen here.

Features of FPI

Portfolio Investment by any single investor or investor group cannot exceed 10% of the equity of an Indian company, beyond which it will now be treated as FDI.

FIIs, Sub-Accounts and QFIs are merged together to form the new investor class, namely Foreign Portfolio Investors, with an aggregate investment limit of 24% which can be raised by the Company up to the applicable sectoral cap.

All existing FIIs and Sub Accounts can continue to buy, sell or otherwise deal in securities under the FPI regime.

All existing Qualified Foreign Investors (QFIs) may continue to buy, sell or otherwise deal in securities only till the period of one year from the date of notification of the FPI Regulation. In the meantime, they have to obtain FPI registration.

Non-Resident Indians (NRIs) and Foreign Venture Capital Investors (FVCI) are excluded from the purview of this definition.

Designated Depository Participants (DDPs) authorized by SEBI (as per prescribed norms) would henceforth register FPIs on behalf of SEBI subject to fulfillment of KYC (Know Your Customer) and due diligence norms. DDPs carry out necessary due diligence and obtain appropriate declarations and undertakings before registering an entity as FPI. The DDPs are either Authorized Dealer Category-1 bank authorized by Reserve Bank of India, or Depository Participant or a Custodian of Securities registered with SEBI. Existing SEBI approved Qualified Depository Participant who were registering the QFIs, but not meeting the DDP eligibility criteria, can operate as DDP only for a period of one year.

Categories of FPI

As part of Risk based approach towards customer identity verification (KYC), FPIs have been categorized into three major categories:

FPI Investment restrictions

FPIs are not allowed to invest in unlisted shares. However, all existing investments made by the FIIs/Sub-accounts/QFIs are grandfathered. In respect of those securities, where FPIs are not allowed to invest no fresh purchase shall be allowed as FPI. They can only sell their existing investments in such securities.

However, an exception has been made by permitting them to invest in unlisted non-convertible debentures/bonds issued by an Indian company in the infrastructure sector, where ‘infrastructure’ is defined in terms of the extant External Commercial Borrowings (ECB) guidelines;

FPIs are permitted to invest in Government Securities with a minimum residual maturity of one year. However, FPIs have been prohibited from investing in T-Bills.

FPI can invest in privately placed bonds if it is listed within 15 days.

The same debt allocation mechanism that is in place for FIIs/QFIs will be followed for FPIs.

The debt investment limits as in June 2014 are as follows

S.No. Type of Instrument Cap (USD bn) Cap (INR Crore) Remarks
1 Government Debt 20 99,546 Available on demand. Eligible investors may invest only in dated securities of residual maturity of one year and above, and existing investment in Treasury Bills will be allowed to taper off on maturity/sale.
2 Government Debt 10 54,023 Available on demand for FIIs registered with SEBI as Sovereign Wealth Funds, Multilateral Agencies, Endowment funds, Insurance Funds, Pension Funds and Foreign Central Banks. Eligible investors may invest only in dated securities of residual maturity of one year and above.
3 Corporate Debt 51 244,323 Available on demand. Eligible investors may invest in Commercial Papers only up to US$ 2 billion within the limit of US$ 51 billion.
  Total 81 397,892

FPIs belonging to Category III will not be allowed to issue Offshore Derivative Instruments (ODIs) and/or Participatory Notes (PNs). However, issuers of ODIs and/or PNs shall directly report to SEBI.

Monitoring of FPI Investments

Since the commencement of the FPI regime from June 01, 2014, both the exchanges and the depositories have put in place a mechanism for the monitoring of the FPI investment limits for both equity and debt securities. The depositories ensure that the investment limits applicable to an FPI/ FPI group having common beneficial ownership, do not get breached. The designated depository participants provide on a daily basis, FPI-wise, ISIN-wise and Company-wise buy/sell information and any other transaction or any related information to their respective depositories on the same day i.e the day on which the transaction was carried out. The stock exchanges provide the details of FPI positions in derivatives instruments and also on paid up equity capital of all the listed companies, ISIN-wise, to the depositories periodically and also provide information regarding change in paid-up equity capital in any listed company.

SEBI vide circular dated April 5, 2018 introduced a new system for Monitoring of Foreign Investment limits in listed Indian companies and prescribed guidelines w.r.t the necessary infrastructure, data to be provided by listed Indian companies and other related matters. Under the new system, disseminating of information regarding the foreign investment limits in listed companies will be operationalised through Depositories and stock exchanges. A company will have to appoint any one depository as its designated depository for the purpose of monitoring the foreign investment limits. Stock exchanges will provide the data on the paid-up equity capital of the company to its designated depository. This data includes the paid-up equity capital of the company on a fully diluted basis (total number of shares that would be outstanding if all possible sources of conversion are exercised). The depositories will provide an interface to the companies to provide and update information on foreign investments through thirteen broad parameters (Basic information about the company, Applicable Sector, Applicable Sectoral Cap, Permissible Aggregate Limit for investment by Foreign Portfolio Investor’s (FPI), Permissible Aggregate Limit for investment by NRI’s, Details of shares held by FPI, NRIs and other foreign investors on repatriable basis, in demat as well as in physical form etc). In an event of any change in any of the details pertaining to the company, such as increase or decrease of the aggregate FPI or NRI limits or the sectoral cap or a change of the sector of the company, the firm needs to inform such changes along with the supporting documentation to its designated depository. A red flag will be activated in case total foreign investment in a company is within 3 per cent or less than 3 per cent of the sectoral headroom (Earlier this cap was 2 percent). Once red flag is activated, depositories will inform the exchanges about the activation of the red flag for the identified scrip and exchanges will issue the necessary notifications on their respective websites. Once a red flag has been activated, the foreign investors shall be liable to disinvest the excess holding within five trading days. Such excess shares should be sold to domestic investors. If a breach of the investment limits has taken place by FPIs, and such FPIs have failed to disinvest within 5 trading days, then necessary action will be taken by Sebi against them.


The depositories – NSDL and CDSL- are required to maintain the data on FPIs.

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