FOREIGN PORTFOLIO INVESTMENT
Q. 1. What are the regulations regarding Portfolio Investments by Foreign Institutional Investors (FIIs)?
A.1. Investment by FIIs is regulated under SEBI (FII) Regulations, 1995 and Regulation 5(2) of FEMA Notifcation No 20 dated May 3, 2000. FIIs include Asset Management Companies, Pension Funds, Mutual Funds, and Investment Trusts as Nominee Companies,
Incorporated/Institutional Portfolio Managers or their Power of Attorney holders, University Funds, Endowment Foundations, Charitable Trusts and Charitable Societies.
• SEBI acts as the nodal point in the
registration of FIIs. The Reserve
Bank of India has granted General
Permission to SEBI Registered FIIs to invest in India under the Portfolio Investment Scheme (PIS).
• Investment by .individual. FIIs
cannot exceed 10% of paid up capital.
Investment by foreign registered as
sub accounts of FIIs cannot exceed
5% of paid up capital. All FIIs and their sub-accounts taken together cannot acquire more than 24% of
the paid up capital of an Indian Company. An Indian Company can
raise the 24% ceiling to the Sectoral Cap / Statutory Ceiling, as applicable, by passing a resolution by its Board of Directors followed by passing a Special Resolution to that effect by their General Body.
Q.2. What are the regulations regarding Portfolio Investments by NRls/ PIOs?
A.2. Non Resident Indian (NRls) and Persons of Indian Origin (PIOs) can purchase/ sell shares/convertible debentures of Indian Companies on Stock Exchanges under Portfolio Investment Scheme. For this purpose, the NRI/PIO has to apply to a designated branch of a bank, which deals in Portfolio Investment. All sale/ purchase transactions are to be routed through the designated branch.
• An NRI or a PIO can purchase shares
up to 5% of the paid up capital of
an Indian company. All NRls/PIOs
taken together cannot purchase
more than 10% of the paid up value
of the company. (This limit can be
increased by the Indian company to 24% by passing a General Body resolution).
• The sale proceeds of the repatriable
investments can be credited to
the NRE/NRO etc. accounts of
the NRI/PIO, whereas the sale of nonrepatriable investment can be credited only to NRO accounts.
The sale of shares will be subject to payment of applicable taxes.
Investment in Government Securities and Corporate Debt
Q.3. Can a Non-resident Indian invest in Government Securities/Treasury bills and Corporate debt?
A.3. Under the FEMA Regulations only NRls and SEBI registered FIIs are permitted to purchase Government Securities/ Treasury bills and corporate debt. The details are as under;
I. A Non-resident Indian can purchase,
a) Government dated securities (other
than bearer securities) or treasury bills or units of domestic mutual funds;
b) bonds issued by a public sector undertaking (PSU) in India;
c) Shares in Public Sector Enterprises being disinvested by the Government of India.
They can also invest, on non-repatriation basis, in dated Government securities (other than bearer securities), treasury bills, units of domestic mutual funds, units of Money Market Mutual Funds in India, or National Plan/Savings Certifcates on non repatriation basis. The guidelines for these schemes are framed by the concerned Government agencies.
II. A SEBI registered Foreign Institutional Investor may purchase, on repatriation basis, dated
Government securities/treasury bills, non-convertible debentures/ bonds issued by an Indian company and units of domestic mutual funds either directly from such securities or through a registered stockbroker on a recognised stock exchange in India. The FIIs is required to ensure that,
a) The FII allocation of its total
investment between equity and
debt instruments (including dated
Government Securities and Treasury
Bills in the Indian capital market) should not exceed the ratio of 70:30.
b) In case the FII is set-up as a 100%
debt FII, it can invest the entire
corpus in dated Government
Securities including Treasury Bills,-
non-convertible debentures/bonds issued by an Indian company subject to limits, if any, stipulated by SEBI
in this regard.
The Investment in Government Securities/Treasury Bills and Corporate debt is subject to a ceiling decided in consultation with the Government of India. Investment limit for the FIIs as a group in Government securities currently is USD 3.2 Billion. The limit for Investment in Corporate debt is USD 1.5 billion. At present, the FIIs can also invest in Innovative instruments such as upper tier-II capital upto a limit of USD 500 million.
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