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Foreign Institutional Investors (FIIs) are allowed to invest in
India in the securities traded in both primary and secondary
capital markets. These securities include shares, debentures,
warrants, and units of mutual funds, government securities and
derivative instruments.
The term FII is defined as an institution established or
incorporated outside India for making investment in Indian
securities and also includes a sub-account of an FII. FIIs
include Asset Management Companies, Pension Funds, Mutual Funds,
Investment Trust as nominee companies,
Incorporated/Institutional Portfolio managers or their power
attorney holders, University Funds, Endowment Foundations,
Charitable Trusts and Charitable Societies.
FIIs, must register with Securities and Exchange Board of India
(SEBI) and shall comply with the Exchange Control Regulations of
RBI.
Policy on FII Investment
Main features of the policy on investment by FII are :
a) FIIs are required to allocate their investment between equity
and debt instruments in the ratio of 70:30. However, it is also
possible for an FII to declare itself a 100% debt FII in which
case it can make its entire investment in debt instruments.
b) FIIs can buy/sell securities on Stock Exchanges. They can
also invest in listed and unlisted securities outside Stock
Exchanges where the price has been approved by RBI.
c) No individual FII/sub-account can acquire more than 10% of
the paid up capital of an Indian company.
d) All FIIs and their sub-accounts taken together cannot acquire
more than 24% of the paid up capital of an Indian Company.
e) Indian Companies can raise the above mentioned 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 its General Body in terms
of Press Release dated Sept.20, 2001 and FEMA Notification No.45
dated Sept. 20, 2001.
No permission from RBI is needed so long as the FIIs purchase
and sell on recognized stock exchange. All non-stock exchange
sales/purchases require RBI permission.
Portfolio investments by NRIs
NRIs/PIOs are permitted to 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 the sale/purchase transaction are
routed through the designated branch. An NRI can purchase shares
up to 5% of the paid up capital of an Indian company. All NRIs
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. Investment
can be made both on repatriation basis or non-repatriation basis.
The sale of shares will be subject to payment of applicable
taxes.
Details regarding portfolio investment scheme available at the
website of RBI (www.rbi.org.in) and Security & Exchange Board
of India (SEBI) (www.sebi.gov.in)
Website of SEBI relating to FIIs
http://www.sebi.gov.in/Index.jsp?contentDisp=Department&dep_id=10 |
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