Foreign Portfolio Investment [FPI] by SEBI

By : Neha Dhyani

Updated : May 31, 2022, 5:27

Foreign Portfolio Investment [FPI] comprises securities, bonds, and other financial assets held by international investors. In FDI, an investor interested in foreign opportunities can invest in securities and expects to make an earning in return. They are highly critical sources of funding for most overseas economies.

Foreign Portfolio Investment [FPI] - Overview

It is part of the country's capital amount reflected in BOP or the balance of payments. The Foreign Portfolio Investment [FPI] does not give the investor direct control over the company's assets, and they are comparatively liquid depending upon the market conditions. FPIs are another alternative through which one can invest in another country's economy. Foreign Portfolio Investment [FPI] holdings also include American Depositary Receipts (ADRs), mutual bonds, GDRs, and exchange-traded funds.

Foreign Portfolio Investment [FPI] are becoming increasingly prominent among investors because of the myriad perks. FPI is significantly volatile and thus is frequently regulated to manage the risks involved in FPIs.

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Advantages of Foreign Portfolio Investment [FPI]

  • International Credit

Through FPI, investors have a chance to increase their international credit base and, by extension, secure their credit line. Even if the individual domestic credit score is bad, having an intentional score is sufficient for them. It will help the investor to get more returns on equity investment.

  • High Liquidity

Investors can seamlessly buy or sell foreign portfolios as they offer high liquidity. This enhances the investor's purchasing power as it enables them to make rapid buying decisions during favourable market conditions.

  • Investment Diversity

FDI is an excellent way to diversify one's portfolio to get high returns on your investment. It neutralizes the impact of your losses.

  • Exchange Rate

An investor can leverage the nature of exchange rates of different countries to boost their profits. Currencies fall or rise depending upon the country's economy. Investors can benefit by using currencies with a higher exchange rate.

  • Bigger Markets

FPI gives investors access to an enormous marketplace. Foreign markets are sometimes less competitive and less saturated than domestic markers, thus offering higher returns.

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Categories of Foreign Portfolio Investment [FPI]

There are three categories under which investors can register for Foreign Policy Investment.

Category I includes investors belonging to the government sector, for example, central banks, multilateral organizations, and government agencies.

Category II includes investors interested in broad-based funds like investment trusts, mutual funds, etc. Portfolio Managers, Asset Management Companies, Investment Advisors, etc., also belong to this category.

Category III comprises everyone who's not included in the first two categories. For instance, charitable societies, corporate bodies, foundations, endowments, etc.

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FAQs on Foreign Portfolio Investment [FPI]

Q1. Who regulates Foreign Portfolio Investment [FPI] in India?

The Foreign Portfolio Investment [FPI] is regulated by SEBI or India's Securities and Exchange Board.

Q2. Mention any three eligibility criteria for Foreign Portfolio Investment [FPI]

The three eligibility criteria for Foreign Portfolio Investment [FPI] are-

  • The applicant should be a non-resident Indian
  • Should be or eligible to invest in securities in foreign countries
  • The investor should have the approval of the AOA or MOA or Agreement

Q3. What are the risks involved in Foreign Portfolio Investment [FPI]?

Instability or changes in the political environment and low liquidity in developing counties are two risks involved in Foreign Portfolio Investment [FPI].

Q4. What is the validity period of Foreign Portfolio Investment [FPI] registration?

Foreign Portfolio Investment [FPI] registration period is permanent unless it is cancelled or suspended by SEBI. Nonetheless, the investor is liable to pay a renewal fee every three years.