If you are looking for a safe investment option, you can consider fixed deposit. They offer guaranteed returns and a fixed interest rate throughout your investment tenure.
Benefits of FPI
1. Investment diversity
FPI enables investors to diversify their portfolios and subsequently receive higher returns. For instance, if an investor incurs significant losses in the investment assets of one country, they can accrue profits in the investment assets of another country. This allows them to experience less volatility in their investments and increases the potential for profits.
2. International credit
FPIs allow investors to access increased amounts of credit in foreign countries. This enables them to expand their credit base and secure their line of credit. They benefit from having an international credit score if the home country’s credit score is unfavourable. With this, they can capitalise on the opportunity and achieve high returns on equity investment.
3. Access to a wider market
Foreign markets can sometimes be less competitive than the domestic market. FPI provides exposure to a larger market. Foreign markets are less saturated and, hence, may offer higher returns alongside greater diversity.
4. High liquidity
FPIs provide higher liquidity, which allows investors to seamlessly buy and sell foreign portfolios. This gives them greater buying power to act when the right purchase opportunities arise.
5. Exchange rate benefit
Investors can benefit from the dynamic nature of international currencies. Since some currencies can drastically fall or rise, a strong currency can be used in their favour.
If you are looking to diversify your investments portfolio, Fixed Deposit (FD) can be a good choice. FDs provide a fixed interest rate throughout the investment period. Interest rate on FDs does not change with market fluctuations. NBFC’s like Bajaj Finance offers one of the highest rate of up to 8.85% p.a. on their Fixed Deposits.
Policies for foreign portfolio investment
Foreign portfolio investments are subject to certain regulatory requirements, which can differ from country to country. India's dependence on FPI means that regulatory compliance will remain at the forefront of its operations. Let us have a look at some of the policies for foreign portfolio investments in India.
- FPIs are regulated by the Securities and Exchange Board of India (SEBI), which introduced the Foreign Portfolio Investors Regulations in 2019. FPIs also need to comply with the Income Tax Act of 1961 and the Foreign Exchange Management Act of 1999.
- Foreign investors can make investments in Indian shares through foreign portfolio investment, with no restrictions on investing in Indian companies. However, FPIs are subject to certain taxes and disclosure requirements.
- Investors, whether individuals or firms, have to be registered with India’s markets regulator to invest in shares of India’s listed companies. Additionally, they must comply with the country’s disclosure requirements.
- An FPI cannot hold more than 10% of a listed company. If it does, it gets categorised as foreign direct investment, for which there are restrictions in certain sectors.
- All FPIs in India must be in Indian Rupees and carried out via brokers. All foreign portfolio investment transactions are taxable as per the taxes applicable to domestic investors. The short-term capital gains of less than a year are taxed at 15%, and long-term holdings at 10%, along with a surcharge and securities transaction tax.
Also read: Smart investment options
Categories in foreign portfolio investment
Foreign Portfolio Investment (FPI) can be registered under the following categories:
Category I: This category includes government sector investors such as central banks, governmental agencies, and international or multilateral organizations or agencies.
Category II: This includes regulated broad-based funds like mutual funds, investment trusts, and insurance/reinsurance companies. It also encompasses regulated banks, asset management companies, portfolio managers, investment advisors, and managers.
Category III: This category is for investors not eligible for the first two categories. It includes endowments, charitable societies, charitable trusts, foundations, corporate bodies, trusts, and individuals.
Who Regulates FPI in India?
The Securities and Exchange Board of India (SEBI) regulates Foreign Portfolio Investment (FPI) in India, ensuring compliance with financial regulations and maintaining market stability.
Eligibility criteria for foreign portfolio investment
To register as an FPI, an individual must meet the following criteria:
- According to the Income-tax Act 1961, the applicant should not be a non-resident Indian.
- The applicant should not be a citizen of a country listed under the FATF public statement.
- The applicant must be eligible to invest in securities outside their home country.
- Approval from the MOA/AOA/Agreement is required to invest in securities.
- A certificate indicating the applicant's interest in the development of the securities market is necessary.
- If the applicant is a bank, it must be from a country whose central bank is a member of the Bank for International Settlements.
Also read: What is Real Estate Investment Trust
Conclusion
Foreign Portfolio Investments are a vital component of India’s economic landscape. They have gained prominence across India as a means of portfolio diversification. They provide several advantages, such as capital influx and liquidity.
Moreover, India's stock markets are now ranked the fourth largest in the world. FPIs have become an important source of investment capital in the country. Foreign investors have boosted the Indian equity markets, recording an influx of around Rs. 1.5 lakh crore in 2023, which can be attributed to the country's resilient economy. As per experts, this positive trend is likely to continue in 2024. The growing prominence of FPI means the country is expected to continue to attract foreign investors.
Calculate your expected investment returns with the help of our investment calculators
