Iore|gn ortfo||o Investment

1he Iore|gn Lxchange Management Act 2000

DeIines Foreign PortIolio Investment as buying and selling oI shares, convertible debentures
oI Indian companies, and units oI domestic mutual Iunds at any oI the Indian stock exchanges
It is the passive holding oI securities such as Ioreign stocks, bonds, or other Iinancial assets,
none oI which entails active management or control oI the securities issues by the investor,
Start|ng up
In 1992, India opened up its economy and allowed Ioreign portIolio investment in its
domestic stock market
Since then, FPI has emerged as a major source oI private capital inIlow in this country
India is more dependent upon FPI than FDI as a source oI Ioreign investment.
During 1992 -2005 more than 50 percent oI Ioreign investment in India came Irom FPI.
February 20, 2010 FDI & FPI
ll can geL 8eneflL Lhe 8eal SecLor Cf an Lconomy
In 1hree 8road Ways
InIlow oI FPI can provide a developing non debt creating source oI Ioreign investment.
FPI can induce Iinancial resources to Ilow Irom capital abundant countries, where expected
returns are low, to capital scarce countries where expected returns are high.
FPI aIIects the economy through its various linkage eIIects via the domestic capital market
Invest|ng |nc|udes
Ways of Iore|gn Inst|tut|ona| Investments
Foreign Organization set up to invest in India
GDRs/ADRs
Raising money Irom abroad through issue oI shares abroad, OIIshore Funds
Funds raised outside India to be invested here

1he way of II can he|p an Lconomy
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ortfo||o Cap|ta| I|ow
FIIs have invested more than Rs 145,000 crore rupees in the Indian stock market
In 1990-helped India to mitigate its Ioreign exchange shortage and build high level oI Ioreign
exchange reserves
Iactors affect|ng ortfo||o Investment
Tax rates on interest or dividends
Interest rates
Exchange rates
P.I is the part oI capital account on BOP
1he L||g|b|||ty cr|ter|a for app||cant seek|ng III reg|strat|on
Applicant should have track record, proIessional competence, Iinancial soundness,
experience, general reputation oI Iairness and integrity;
The applicant should be regulated by an appropriate Ioreign regulatory authority in the same
capacity/category where registration is sought Irom SEBI.
Registration with authorities, which are responsible Ior incorporation, is not adequate to
qualiIy as Foreign Institutional Investor.
The applicant is required to have the permission under the provisions oI the Foreign
Exchange Management Act, 1999 Irom the Reserve Bank oI India
Applicant must be legally permitted to invest in securities outside the country or its in-
corporation / establishment.
The applicant must be & quote; Iit and proper& quote; person.
The applicant has to appoint a local custodian and enter into an agreement with the custodian.
Besides it also has to appoint a designated bank to route its transactions.
Payment oI registration Iee oI US $ 5,000.00
kegu|at|ons regard|ng ortfo||o Investment by IIIs
RBI has granted permission to SEBI registered (FIIs) invest in India under PortIolio
investment scheme.
All FIIs and their sub-accounts taken together cannot acquire more than24 oI the paid up
capital oI an Indian economy
Investment by individual FIIs cannot exceed 10 oI paid up capital. Investment by Ioreign
registered as sub accounts oI FII cannot exceed 5 oI paid up capital
kegu|at|ons kegard|ng ortfo||o Investments by NkIs] ICs
Non Resident Indian (NRIs) and Persons oI Indian Origin (PIOs) can purchase/sell
shares/convertible debentures oI Indian companies on Stock Exchanges under PortIolio
Investment Scheme.
For this purpose, the NRI/PIO has to apply to a designated branch oI a bank, which deals in
PortIolio Investment.
All sale/purchase transactions are to be routed through the designated branch.
An NRI or a PIO can purchase shares up to 5 oI the paid up capital oI an Indian company.
All NRIs/PIOs taken together cannot purchase more than 10 oI the paid up value oI the
company
This limit can be increased by the Indian company to 24 by passing a General Body
resolution).
The sale proceeds oI the repatriable investments can be credited to the NRE/NRO etc.
accounts oI the NRI/PIO whereas the sale proceeds oI non-repatriable investment can be
credited only to NRO accounts.
The sale oI shares will be subject to payment oI applicable taxes
ortfo||o Investment Scheme
PIS is a scheme oI Reserve Bank oI India deIined in schedule 3 oI Foreign Exchange
Management Act 2000.
It allows NRIs to purchase or sell shares/debentures oI Indian companies on a recognized
stock exchange by routing such purchase/sale transactions through their account with Bank
Branch
An NRI/PIO can purchase share up to 5 oI the paid up capital oI the Indian company
All NRIs/PIOs taken together cannot purchase more than 10 oI the paid up value oI the
company.
It can be increased up to 24 by passing a general body resolution.
Investment can be repatriable or non-repatriable in nature .
In order to invest on a repatriable basis, investor must have an NRI or FCNR bank account in
India. The amount representing investment should be received by inward remittance through
normal banking channels or by debit to NRE Account/FCNR account oI the NRI.
The dividend/interest oI units may be remitted through normal banking channels or credited
to NCR/FCNR account oI the investor.
Sa|e of Shares
Through private arrangements with the approval oI the RBI.
sale or transIer oI shares and debentures oI Indian companies to other NRIs
No permission is required Irom RBI, however transIeree would require permission Ior
purchase oI the shares.
Short-selling or selling the shares bought by NRI investors beIore delivery is prohibited
1ax Cb||gat|ons
Investors under the PIS are liable to pay Capital Gains Tax on their investments which
depends on the tenure oI their stocks.
Prevailing rates are deducted at source by the designated bank
App||cat|ons for the IS
A NRI can operate the PIS through only one selected branch.
To operate Irom more than one branch, special permission Irom the RBI is required.
1. Documents required by designated banks to apply Ior the PIS.
1. PIS application Iorm
1. RPI or NRI Form, with details oI shares bought Irom the primary
market
1. TariII Sheet oI the PIS
1. Demat Account opening Iorm


rocedure for open|ng of IS Account
IS(NkL) Account
PIS (NRE) Account
Application Ior PIS
Letter oI Authority Ior operating the account
Acceptance oI Fee Schedule Ior PIS
Form RPI (with Repatriation beneIits)
Annexure-I (For shares purchased through Primary Market as NRI on Repatriable basis)
Nomination Form DA-1

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overnment In|t|at|ves
India`s Ioreign investment policies allow FDI up to 26 per cent and FII oI (an additional) 23
per cent in stock exchanges. Under the regulation.
FIIs and the NRIs are allowed to invest in Indian Depository Receipts (IDRs)
FPI have been allowed to trade in IRFs, but limits have been put in place to keep their
inIluence under check
Iore|gn ortfo||o f|ows
PortIolio Ilows as a non-debt creating investment Ilow has increased its share in the total
Ioreign investment Ilows.
During the year 2003-04 these Ilows` share in the capital Ilows touched an all time high oI
about 67.8 percent
Cff shore funds
Funds that are created abroad speciIically targeting investment in India
1. Examples:
1. 3i India InIrastructure Fund
1. CC Art Limited
1. Urban InIrastructure Real Estate Fund
1. Tara Feeder Fund
1. India Optima Fund
1. CNC India Investments, I L.P





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Status of II |n Ind|a
elped in mitigating Ioreign exchange shortages
ave a strong inIluence on the Indian stock market.
Stock market depth(ratio oI stock market capitalization to GDP)
Development oI secondary market took place, however primary market has not shown any
signiIicant eIIect.
keasons for s|ow pr|mary market deve|opment
Rapid growth oI private placements markets which are preIerred due to:
Can be tailored to speciIic needs oI entrepreneurs
Issuing securities not under regulation till recent past.
Withdrawal oI domestic retail investors Irom stock market. (1.37 oI total household
savings)
Irregularities, uncertainties and lack oI protection measures result in decline, FIIs also much
less active due to prolonged lock in period Ior the primary markets.
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Conc|us|on
BeneIicial iI well Iunctioning stock markets support the economic development oI the
country.
Impose signiIicant Iiscal cost on economy as has to maintain the value oI rupee in a very
narrow band.
ave to ensure the attractive Ior the investors.