In order to streamline the deficiencies, functioning and to pluck out money laundering in the area of Foreign Investment by Institutional Investors abroad, Securities and Exchange Board of India (‘SEBI’) has come up with new regulation being SEBI (Foreign Portfolio Investors) Regulations, 2014 (‘FPI Regulations’) w.e.f. January 7, 2014 by revoking erstwhile SEBI (Foreign Institutional Investors) Regulations, 1995 (‘FII Regulations’). With effect from this regulation, Indian Capital Market has got new class of investors namely Foreign Portfolio Investors (‘FPI’) and that the Foreign Institutional Investors (‘FII’), its Sub-Accounts & Qualified Foreign Investors (‘QFI’) had conglomerated with FPI.

In this article, we will discuss about FPI, the legal framework governing FPI, latest development in Stock Market with the effect of FPI Regulations.

Foreign Investment in India can be made either in form of FDI and FPI. Under FDI, Non Resident (NR) can make investment in Indian Corporates to make it as Subsidiaries or Joint Venture after complying with FEMA, 1999 together with RBI circulars, rules and other regulations. For eg: Indian Oil Skytanking Limited, Joint Venture of Skytanking GmbH, Germany and IOT Infrastructure & Energy Services Ltd. Their Areas of operation is maintaining aviation fuel facility project, designing, construction. As a result of said investment, foreign investors can participate in the policy decisions/ control the investee Company in its operations. No Secondary Market investments, investment in Mutual Fund or Government Securities are allowed under FDI scheme.

On the other part, FPIs are allowed to make investment in stock market by adhering to the FPI Regulations and RBI rules & Regulations. Person who is making investment doesn’t have any control/ policy decisions in Investee Company’s management. For eg: Foreign Pension Fund Scheme making investment in India. Now let us understand the concept of FPI.

The term “FPI” has been defined as under:

A person who satisfies the eligibility criteria prescribed under regulation 4 and has been registered under Chapter II of FPI regulations, which shall be deemed to be an intermediary in terms of the provisions of the Act.

Provided that any FII or QFI who holds a valid Registration Certificate shall be deemed to be a FPI till the expiry of the block of three years for which fees have been paid as per the FII Regulations.


As per Regulation 4 of FPI Regulations, the applicant should inter-alia satisfy following eligibility criteria to become FPI which is enumerated as below:

  • The applicant should not be resident India including NRI.
  • The applicant is resident of a country whose
    • Securities Market Regulator is a signatory to the International Organisation of Securities Commission’s (IOSC) Multilateral Memorandum of Understanding (MoU) or is a signatory to Bilateral MoU with SEBI.
    • Central Bank is member of Bank for International Settlements.
    • Jurisdiction has not been identified in public statement of Financial Action Task Force with any deficiencies/ warnings.
  • The Applicant is legally permitted to invest in Securities outside the Country of its incorporation or establishment or place of business.
  • The applicant should be authorised by the Memorandum of Association and Articles of Association or equivalent document(s) or the agreement to invest on its own behalf or on behalf of its clients.
  • The applicant should have sufficient experience, good track record, professionally competent, financially good, good reputation with fairness and integrity.


A Person shall not buy, sell or otherwise deal (‘trade’) in securities as FPI unless it has obtained a Certificate granted by Designated Depository Participant (DDP). FII or sub-account may continue to trade in securities until the expiry of registration or until it obtains a Registration Certificate as FPI whichever is earlier subject to payment of conversion fees. Also QFI may continue to trade in securities for a period of 1 year from the date of commencement of FPI regulations or until it obtains a registration Certificate as FPI, whichever is earlier.

 The FPI registration is granted by DDP who fulfils the eligibility conditions and on submitting the application along with requisite fees. If all requisite documents are in line, DDP will grant the Registration Certificate at the earliest which shall not exceed 30 days from the receipt of application or further information/ documents called for by the DDP. The Registration granted shall be permanent unless it is suspended or cancelled by the SEBI or surrendered by the FPI.

Application may be rejected by DDP due to non satisfaction of requirements under FPI regulations after giving reasonable opportunity of being heard. The aggrieved party may approach the SEBI for reconsideration of DDP’s decision within 30 days of receipt of communication about rejection of the application.


As per Regulation 20 & 21 of FPI Regulations, FPI shall invest only in following securities after complying with other conditions under Chapter IV of FPI regulations:


1. Securities in the Primary and Secondary Markets;

2. Units of schemes floated by Domestic Mutual Funds;

3. Units of schemes floated by a Collective Investment Scheme;

4. Derivatives traded on a recognized Stock Exchange;

5. T-bills and dated government securities;

6. Commercial Papers issued by Indian companies;

7. Rupee denominated credit enhanced bonds;

8. Security Receipts issued by Asset Reconstruction Companies;

9. Perpetual debt instruments and Debt Capital Instruments;

10. Listed and unlisted non-convertible debentures/ bonds issued by an Indian company in the infrastructure sector;

11. Non-convertible debentures or bonds issued by NBFC categorized as ‘Infrastructure Finance Companies’ (IFCs) by the RBI;

12. Rupee denominated bonds or units issued by infrastructure debt funds;

13. Indian Depository Receipts;

14. Unlisted non-convertible debentures/ bonds issued by an Indian company;

15. Securitized Debt Instruments,

16. Such other instruments specified by the SEBI.

As per Consolidated FDI Policy, 2016 w.e.f. June 07, 2016, Master Circular on Foreign Investment in India and in terms of Schedule 2 & 2A of FEMA (Transfer or Issue of Security by Persons Resident Outside India) Regulations, 2000, FPIs may invest in the capital of an Indian company under the Portfolio Investment Scheme with individual holding of an FPI below 10% of the capital of the company and the aggregate limit for FPI investment to 24% of its capital. This aggregate limit of 24% can be increased to the Sectoral Cap, as applicable, by the Indian company through Board resolution followed by a Special Resolution at the General Meeting and subject to prior intimation to RBI. The aggregate FPI investment, individually or taken together, will not exceed Sectoral/ Statutory Cap.


As per Regulation 2(1)(j) “Offshore Derivative Instrument” means any instrument, by whatever name called, which is issued overseas by a foreign portfolio investor against securities held by it that are listed or proposed to be listed on any recognised stock exchange in India, as its underlying.

FPIs are not allowed to issue, subscribe or otherwise deal in this security unless it satisfies with following conditions:

  • such ODIs are issued only to persons who are regulated by an appropriate foreign regulatory authority;
  • such ODIs are issued after compliance with ‘Know Your Client’ norms:

FPI should disclose to the SEBI all information concerning the terms of and parties to ODIs such as participatory notes, equity linked notes or any other such instruments, by whatever name called, entered into by it relating to any securities listed or proposed to be listed in any stock exchange in India.


As you all know that the stock market indices NSE NIFTY and S&P BSE SENSEX has hit record high of 9,709.30 points and 31,430.32 points (refer graphs as given below) in the last week of May 2017 predominantly on account of FPI’s Investment due to the implementation of GST and upcoming RBI’s Second Bi-monthly Monetary Policy. India being fastest growing nation, sustain to be one of the best nation for making investment due to the various programmes like Make in India, Digital India, Ease of Doing Business, Smart Cities, Jan Dhan Yojana etc.

RBI on April 3, 2017 has increased the limit for investment in Government Securities for the quarter ending June 30, 2017 which is detailed below:

  • Limit for FPIs in Central Government Securities has revised to Rs. 1.85 Lakhs Crore.
  • Limit for Long Term FPIs (Sovereign Wealth Funds (SWFs), Multilateral Agencies, Endowment funds, Insurance Funds, Pension Funds and Foreign Central bank) in Central Government Securities has revised to Rs. 46,099 Cr.
  • Limit for Investment in State Development Loans (SDL) has enhanced to Rs. 27,000 Cr.


SEBI can now concentrate on core areas of its activities as it has delegated some of its power to DDPs particularly FPI registration. Every FPIs and DDPs are required to appoint a compliance officer who shall be responsible for monitoring the compliance of the Act, rules and regulations, notifications etc. issued by SEBI or Central Government. Compliance officer shall also immediately and independently report to SEBI regarding any non-compliance observed by him. We, the Company Secretaries have scope of employment in this area.

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