What Is Foreign Portfolio Investment (FPI)?

International equity flow is the main features of current globalisation of capital market both in developing and developed economies. These flows take two major forms: (1) Foreign Direct Investment (FDI) (2) Foreign Portfolio Investment (FPI).

Now we are going to discuss about Foreign Portfolio Investment (FPI).

Foreign Portfolio Investment (FPI)

Foreign Portfolio Investment means investment made by resident entity of one country, in the equity and debt securities*of company which are issued in another country. FPI seeks primarily capital gains and do not necessarily reflect a significant and lasting interest in the company which happens in Foreign Direct Investment (FDI). Lasting interest implies the existence of a long term relationship between direct investor and the company and influence of investor on the management of company.

FPI includes investment in bonds, notes, money market instruments and financial derivatives etc. Despite investment in these securities, foreign investors may also invest in government bonds.

FPI can be made by individuals, company or even government in foreign countries.It does not give investors direct ownership on financial assets or even it is not managed by the investors.

Foreign Portfolio Investment (FPI) shows up in country’s capital account. It is also part of balance of payment account which measures the amount of money comes in and goes out of the country over a given period of time.

FPI is positively influenced by high rate of returns and reduction of risk through geographical diversification.

Rules in India for Foreign Portfolio Investors

According to SEBI (foreign portfolio investors) Regulations, 2014 –

  • Foreign Institutional Investor means an institution that is registered under the Securities and Exchange Board of India (Foreign Institutional Investors) Regulations, 1995.
  • Provided that any foreign institutional investors or qualified foreign investor who hold a valid certificate of registration shall be deemed to be a foreign portfolio investor till the expiry of the block of the three year for which fee have been paid as per the Securities and Exchange Board of India (Foreign Institutional Investors) Regulations, 1995.
  • The SEBI has authorized NSDL to issue registration number and certificate to Foreign Institutional Investor on behalf of SEBI along with monitoring of Foreign PortfolioInvestment group and various data related to Foreign Portfolio Investment activities to be displayed on NSDL web portals.

In India, an Foreign Portfolio Investors are permitted to purchase equity shares of 10% or less than 10% of total issued capital by the company.


Foreign Investment Inflow is the main reason behind India’s economic growth. For Foreign Portfolio Investment (FPI), India is an attractive investment destination market in comparison to other developing countries because of transparency and independency of Securities and Exchange Board of India (SEBI) and Reserve Bank of India (RBI).


* Equity and Debt securities– Equity securities include common stocks and Debt securities include treasury bills, bonds, mortgage, debentures etc.


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