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Foreign Portfolio Investment (FPI) is a type of cross-border investment that involves buying and holding various foreign financial assets by investors who want to diversify their portfolios and access new markets. Foreign portfolio investors can choose from a wide range of financial instruments, such as stocks, bonds, mutual funds, derivatives, fixed deposits, etc. These instruments offer different levels of risk and return, depending on the characteristics of the foreign market and the exchange rate fluctuations. FPI investors do not have any control or ownership over the foreign entities that issue these assets, unlike Foreign Direct Investment (FDI) investors who invest in foreign businesses or projects to influence their management or operations.
FPI has several advantages for both the investors and the host countries. For the investors, FPI allows them to:
For the host countries, FPI can:
However, FPI also has some drawbacks and challenges. For the investors, FPI involves:
For the host countries, FPI can:
Also Read: Bollinger Bands: An Introduction to the Indicator that Helps Predict Market Volatility
To qualify and register as an FPI, an individual must meet certain criteria that vary from country to country. Some of the common criteria are:
Also Read: Minimum and Maximum Limit for Investment in Bonds
Previously, SEBI had classified FPIs into three categories, as follows:
However, in 2019, SEBI revised the categorization of FPIs and simplified the norms for them. According to the new notification, FPIs are now classified into two categories, as follows:
The new categorisation of FPIs aims to make the FPI registration process easier and faster for foreign investors and to attract more capital inflows into the Indian securities market.
Now when you understand the complete concept of foreign portfolio investment meaning, FPI in share market is a significant source of capital flows and financial integration in the global economy. It offers many opportunities and challenges for both investors and host countries. FPI in India has been liberalised and simplified by SEBI in 2014, making it easier for foreign investors to participate in the Indian securities market. According to recent data, the top three countries that have invested in India through FPI are the United States, Mauritius, and Luxembourg.
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