Key terms/definitions related to Purchase/Sale of Capital Instruments by FPI (Foreign Portfolio Investor).
‘Foreign Portfolio Investor (FPI)’ is a person registered in accordance with the provisions of Securities Exchange Board of India (Foreign Portfolio Investors) Regulations, 2014.
‘Listed Indian Company’ is an Indian company which has any of its capital instruments listed on a recognized stock exchange in India and the expression ‘Unlisted Indian Company’ shall be construed accordingly
Purchase/Sale of Capital Instruments by FPI (Foreign Portfolio Investors) of a Listed Indian Company on a Recognised Stock Exchange in India
A Foreign Portfolio Investor (FPI) may purchase or sell capital instruments of an Indian company on a recognised stock exchange in India.
Total Holding by FPI
The total holding by each FPI or an investor group as referred in SEBI (FPI) Regulations, 2014, should be less than 10 per cent of the total paid-up equity capital on a fully diluted basis or less than 10 per cent of the paid-up value of each series of debentures or preference shares or warrants issued by an Indian company and the total holdings of all FPIs put together should not exceed 24 per cent of paid-up equity capital on a fully diluted basis or paid up value of each series of debentures or preference shares or warrants. The limit of 10 percent and 24 percent will be called individual and aggregate limit, respectively.
Increase of Aggregate Limit
The aggregate limit of 24 percent may be increased by the Indian company concerned up to the sectoral cap/ statutory ceiling, as applicable, with the approval of its Board of Directors and its General Body through a resolution and a special resolution, respectively.
Re-classification of Total Investment as FDI
In case the total holding of an FPI increases to 10 percent or more of the total paid-up equity capital on a fully diluted basis or 10 per cent or more of the paid-up value of each series of debentures or preference shares or warrants issued by an Indian company, the total investment so made by the FPI will be re-classified as FDI subject to the conditions as specified by SEBI in this regard and the investee company and the investor complying with the reporting requirements prescribed in Regulation 13 of FEMA 20(R).
Calculation of Total Ceiling
For arriving at the ceiling on holdings of FPI, capital instruments acquired both through primary as well as secondary market will be included. However, the ceiling will not include investment made by the FPI through off-shore Funds, Global Depository Receipts and Euro-Convertible Bonds.
Purchase through Public Offer/Private Placement
An FPI is permitted to purchase capital instruments of an Indian company through public offer/ private placement, subject to the individual and aggregate limits and the conditions specified below:
- in case of Public Offer, the price of the shares to be issued is not less than the price at which shares are issued to residents, and
- in case of issue by private placement, the price is not less than the price arrived in terms of SEBI guidelines or not less than the fair price worked out as per any internationally accepted pricing methodology for valuation of shares on arm’s length basis, duly certified by a SEBI registered Merchant Banker or Chartered Accountant, as applicable
An FPI may undertake short selling as well as lending and borrowing of securities as permitted by the RBI and SEBI subject to the following conditions:
- The short selling of equity shares by FPIs is permitted for equity shares of those companies where there is at least 2% headroom available for total foreign investment and/or aggregate FPI limit or is not in the caution list or ban list published by the Reserve Bank or any restrictive list published by any authority designated to do so by the Reserve Bank or SEBI.
- Borrowing of equity shares by FPIs will only be for the purpose of delivery into short sale.
- The margin/ collateral will be maintained by FPIs as applicable in the cash and F&O segment of equity market. No interest shall be paid to the FPI on such margin/ collateral.
- The designated custodian banks shall separately report all transactions pertaining to short selling of equity shares and lending and borrowing of equity shares by FPIs in their daily reporting with a suitable remark (short sold/ lent/ borrowed equity shares) for the purpose of monitoring by the Reserve Bank.
Limit/Margin on Investment
Investments will be subject to the limits and margin requirements prescribed by the Reserve Bank/ SEBI.
Mode of Payment for Purchase/Sale of Capital Instruments by FPI
The amount of consideration for purchase of capital instruments should be received from abroad through banking channels through inward remittance or out of funds held in a foreign currency account and/ or a Special Non-Resident Rupee (SNRR) account maintained in accordance with the Foreign Exchange Management (Deposit) Regulations, 2016.
The foreign currency account and SNRR account can be used only and exclusively for transactions for Purchase/Sale of Capital Instruments by FPI (Foreign Portfolio Investor).
Remittance of Sale Proceeds
The sale proceeds (net of taxes) of the investments made can be remitted outside India or may be credited to the foreign currency account or SNRR account of the FPI.
Investment Prior to Registration as FPI
All investments made by deemed FPIs in accordance with the regulations prior to their registration as FPIs are valid and taken into account for computation of aggregate limits.