Foreign Institutional Investment in Indian Capital Market
Foreign Institutional Investors including pension funds, mutual funds, investment trusts, etc., are permitted to invest in all securities in the primary and secondary markets including equity shares/debentures of companies which are listed/to be listed on the stock exchange/s in India and PCDs/FCDs/Rights renunciations/warrants/units of domestic mutual fund schemes.
Investments by FIN in primary and secondary markets will be subject to a ceiling of 24% of the total paid-up equity capital of any company. The ceiling would apply to all holdings taking into account the conversions out of the fully and partly convertible debentures issued by the company. The holding of a single FII or the concerned FII group in any company would also be subject to a ceiling of 5% of total paid-up equity capital.
The maximum holding of 24% will also include investments made by NRIs/OCBs under the Portfolio Investment Scheme. It will, however, not include direct foreign investment by a foreign collaborator and investment by FIIs through Off-shore Funds, Global Depository Receipts and Euro-convertible Bonds.
FIIs are required to register themselves with Securities and Exchange Board of India (SEBI) before they invest in the Indian capital market. Applications for registration should be made by FIIs to SEBI in the prescribed form in duplicate. One copy of the application will be forwarded by SEBI to Reserve Bank. Reserve Bank will grant permission under FERA, 1973 to the bank branch designated by the applicant FII to buy/sell equity shares/warrants/units of domestic mutual funds.
In order to facilitate making of investments in India and repatriation of income/sale proceeds of such investments, Reserve Bank will permit the designated bank to open a foreign currency denominated account and a special Non-resident Rupee account in the name of FII.
The designated bank branch will also be permitted (a) to transfer funds from foreign currency account to rupee account and vice versa, (b) to make investments out of the balance in the rupee account, (c) to credit sale proceeds of shares, and other investments as also dividend/interest earned on the investments to the rupee account and (d) to transfer the repatriable proceeds (net of taxes) from the rupee account to the foreign currency account.