Regulations on Portfolio Investments by Foreign Institutional Investors

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This article widely elaborates on the Regulations on Portfolio Investments by Foreign Institutional Investors. Portfolio Investment Scheme, as defined by The Foreign Exchange Management Act 2000 is the 'buying and selling of shares, convertible debentures of Indian companies, and units of domestic mutual funds at any of the Indian stock exchanges.'

Portfolio Investments by Foreign Institutional Investors-

The buying of shares of any Indian company from the subsidiary market is entitled to a cap of 5 percent of the paid-up share assets and 5 percent of the paid-up value of each order of unsecured bonds. As per the portfolio investment policies, the Foreign Institutional Investors can buy and sell Government securities and Treasury Bills with the entire debt ceilings. The authorized dealers have been granted permission to bestow forward cover to the Foreign Institutional Investors in terms of their fresh equity investments in the Indian market. The transactions of Indian stocks among the Foreign Institutional Investors are exempted from the confirmation by the Reserve Bank of India. Furthermore, the unlisted debt assets are entitled to 100 percent FII debt funds for investment matters.

Investment Scenario by Foreign Institutional Investors in Portfolio Management-

The Foreign Institutional Investors SEBI (FII), 1995, controls the portfolio investment. The investments carried out by Foreign Institutional Investors include, a wide spectrum of programs as listed below:
  • Pension Funds
  • University Funds
  • Mutual Funds
  • Endowment Foundations,
  • Charitable Trusts and Charitable Societies
  • Incorporated or Institutional Portfolio Managers or their Power of Attorney holders
  • Investment Trusts as Nominee Companies
  • Asset Management Companies
SEBI plays a pivotal role in the registration matters of FIIs. SEBI registered FIIs have been granted permission by RBI to carry out investment matters in India under the Portfolio Investment Scheme (PIS). As per the Portfolio Investment Scheme, individual investors cannot surpass 10 percent of paid up capital and the foreign registered sub accounts of FII are not allowed to cross 5 percent of the paid up capital as well. The Foreign Institutional Investors along with their sub accounts cannot occupy more than 24 percent of the paid up capital of an Indian firm.

Last Updated on 05/07/2011