FOREIGN PORTFOLIO

INVESTMENT IN INDIA
 Group no:-5


Pradeep kumar -09020242026

Salil raibole-09020242027  

 Rajnish Jakhar-09020242028
 Rishabh Sood-09020242029
 Rishika Mittal-09020242030
 Sachin Lakade-09020242032



Foreign Portfolio
Investment
 The Foreign Exchange Management Act 2000
defines Foreign Portfolio Investment as buying
and selling of shares, convertible debentures
of Indian companies, and units of domestic
mutual funds at any of the Indian stock
exchanges


 It is the passive holding of securities such as

foreign stocks, bonds, or other financial assets
,none of which entails active management or
control of the securities issues by the investor,


Starting up

 In 1992, India opened up its economy and

allowed foreign portfolio investment in its
domestic stock market


 Since then ,FPI has emerged as a major source

of private capital inflow in this country


 India is more dependent upon FPI than FDI as a

source of foreign investment.

 During 1992 -2005 more than 50 percent of
foreign investment in India came from FPI.

FDI & FPI01/08/10 3
How FPI Can Benefit The Real
Sector Of An Economy :
 In Three Broad Ways
◦ Inflow of FPI can provide a developing non – debt
creating source of foreign investment.


◦ FPI can induce financial resources to flow from

capital – abundant countries, where expected
returns are low, to capital scarce countries
where expected returns are high.

◦ FPI affects the economy through its various
linkage effects via the domestic capital market.
  

How FPI flow can help an
economy?

FDI & FPI01/08/10 5

Portfolio Capital Flow

 FIIs have invested more than Rs 145,000

crore rupees in the Indian stock market

 In 1990-helped India to mitigate its foreign
exchange shortage and build high level of
foreign exchange reserves.
 Factors affecting Portfolio
Investment

 Tax rates on interest or dividends

 Interest rates

 Exchange rates

 P.I is the part of capital account on BOP

FDI & FPI01/08/10 7

The eligibility criteria for
applicant seeking FII
registration
 Applicant should have track record, professional
competence, financial soundness, experience, general
reputation of fairness and integrity;


 The applicant should be regulated by an appropriate

foreign regulatory authority in the same
capacity/category where registration is sought from
SEBI.


 Registration with authorities, which are responsible for

incorporation, is not adequate to qualify as Foreign
Institutional Investor.


 The applicant is required to have the permission under

the provisions of the Foreign Exchange Management
Act, 1999 from the Reserve Bank of India.

  Applicant must be legally permitted to
invest in securities outside the country or
its in-corporation / establishment.
 The applicant must be a "fit and proper"
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.

 Regulations regarding
Portfolio Investment by FIIs

 RBI has granted permission to SEBI registered
(FIIs) invest in India under Portfolio investment
scheme.

 All FIIs and their sub-accounts taken together
cannot acquire more than24% of the paid up
capital of an Indian economy

 Investment by individual FIIs cannot exceed
10% of paid up capital.  Investment by foreign
registered as sub accounts of FII cannot
exceed 5% of paid up capital

FDI & FPI01/08/10 10

 Regulations Regarding
Portfolio Investments by
NRIs/PIOs
 Non Resident Indian (NRIs) 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 NRIs/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
proceeds of non-repatriable investment can be
credited only to NRO accounts.


 The sale of shares will be subject to payment of

applicable taxes.
PORTFOLIO INVESTMENT
SCHEME
 The FEMA defines the PIS, permitting NRI and FII to
buy and sell shares and convertible debentures of
Indian companies, and units of domestic mutual
funds at any of the Indian stock exchanges.


 Purchase of sharesis subject to a ceiling of 5% of the

paid-up share capital and 5% of the paid-up value
of each series of debentures.


 The Portfolio Investment Scheme allows NRIs to

acquire shares/debentures of Indian companies or
units of domestic Mutual Funds through the stock
exchange(s) in India.

  Ceiling on investment under the Portfolio Investment Scheme is
an overall ceiling of 5% of paid-up share capital of
thcompany/paid-up value of each series of convertible
debentures for purchase by NRIs/OCBs


 It can be increased up to 24%



 Conditions need to be fulfilled for investing in mutual

funds schemes on repatriable basis


 In order to invest on a repatriable basis, you must have an NRI

or FCNR bank account in India. The mutual fund should
comply with the terms and conditions stipulated by SEBI, the
amount representing investment should be received by
inward remittance through normal banking channels or by
debit to NREAccount/ FCNR account of the NRI.
Application for the PIS
 A NRI can operate the PIS through only one
selected branch.


 To operate from more than one branch,

special permission from the RBI is required.


 Documentsrequired by designated banks to

apply for the PIS.
 PIS application form
RPI or NRI Form, with details of shares bought
from the primary market
Tariff Sheet of the PIS
 Demat Account opening form
◦
Sale of shares

 Through private arrangements with the

approval of the RBI.


 sale or transfer of shares and

debentures of Indian companies to
other NRIs
◦  No permission is required from RBI, , however,
would require permission for purchase of the
shares.
◦ Short-selling or selling the shares bought by NRI
investors before delivery is prohibited.



Tax Obligations

 Investors under the PIS are liable to pay

Capital Gains Tax on their investments
which depends on the tenure of their
stocks.


 Prevailing rates are deducted at source by

the designated bank.

NON-RESIDENT INDIANS -
PORTFOLIO INVESTMENT
SCHEME
 RBI had allotted specific code to the banks
dealing in PIS.


Sr No Name of Branch Code allotted by RBI

1 PNB House, Fort, 4401

Mumbai – 400 001

2 ECE House, K.G.Marg, 4402

New Delhi-110 001

3 Brabourne Road, Kolkata4403

Procedure for opening of PIS
Account
   PIS (NRE) Account
  ◦ Application for PIS
◦ Letter of Authority for operating the account
◦ Acceptance of Fee Schedule for PIS
◦ Form RPI (with Repatriation benefits)
◦ Annexure-I (For shares purchased through
Primary Market as NRI on Repatriable basis)
◦ Nomination Form ‘DA-1’
  

Procedure for opening of PIS
Account (cont…)
 PIS (NRO) Account 
◦ Application for PIS
◦ Letter of Authority for operating the account
◦ Acceptance of Fee Schedule for PIS
◦ Form NPI (without Repatriation benefits)
◦ Annexure-II (Shares purchased as NRI through
Primary Market on non-repatriation basis)
◦ Annexure-III (Shares purchased through
Primary/Secondary Market during resident
status/received in inheritance)
◦ Nomination Form ‘DA-1’.

Government Initiatives

 India’s foreign investment policies allow FDI

up to 26 per cent and FII of (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
influence under check
Foreign Portfolio flows

 Portfolio flows as a non-debt creating

investment flow has increased its share in
the total foreign investment flows.
 During the year 2003-04 these flows’
share in the capital flows touched an all
time high of about 67.8 percent
Foreign Portfolio Trends
Composition of FP Flow
Openness of Foreign Portfolio
Flows in the Indian Context