Foreign Institutional Investors

Meaning of 'Foreign Institutional Investor - FII'

The term is used most commonly in India to refer to outside companies investing in the financial markets of India.  International institutional investors must register with the Securities and Exchange Board of India to participate in the market. FIIs are allowed to subscribe to new securities or trade in already issued securities.

History of FII  in India

India opened its stock market for foreign investors in September 1992, and In 1993 for receiving portfolio investment from foreigners in the form of foreign institutional investment (FII) in equities.    

The major source (almost 50%) of money the FIIs invest is from the issue of Participatory Notes (P-Notes) or what are sometimes called Offshore Derivatives. They are instruments used by foreign investors that are not registered with the SEBI (Securities & Exchange Board of India) to invest in Indian stock markets. Over a period of time, Indian companies performances have improved accordingly FIIs confidence is build up which leads to FII with value of $ 10 billion in 2010.

Who can get registered as  FIIs

Following foreign entities / funds are eligible to get registered as FII:

1. Pension Funds
2. Mutual Funds
3. Investment Trusts
4. Banks
5. Insurance Companies / Reinsurance Company
6. Foreign Central Banks
7. Foreign Governmental Agencies
8. Sovereign Wealth Funds
9. International/ Multilateral organization/ agency
10. University Funds (Serving public interests)
11. Endowments (Serving public interests)
12. Foundations (Serving public interests)
13. Charitable Trusts / Charitable Societies (Serving public interests)

How Indian Economy is impacted with FII

Over the past ten years, foreign investment has grown at a significantly more rapid pace than either international trade or world economic production generally. FIIs has both Positive and negative impacts on India as below :-

E.How does  government taking initiatives to promote FII in India?

Economies like India, which offer immense growth potential, are emerging as favorite investment destinations for foreign institutional investors (FIIs). India continues to be a preferred market for foreign investors.

RBI Relaxation :-       

The RBI has hiked the FIIs’ sub-limit in government bonds by US$ 5 billion, after the US$ 20 billion limit was nearly exhausted with stabilize yields. The RBI has allowed foreign investors, including foreign portfolio investors (FPIs) and non-resident Indians (NRIs) to invest up to 26 per cent in insurance and related activities via the automatic route. "Effective from February 4, 2014, The RBI has also allowed a number of foreign investors to invest, on repatriation basis, in non-convertible/redeemable preference shares or debentures issued by Indian companies listed on established stock exchanges in India.

Taxation Relaxation :-

Foreign institutional investors (FIIs) from countries with which India has double taxation avoidance agreements (DTAAs) that specifically exempt them from capital gains tax escape minimum alternate tax (MAT) otherwise normal provisions for taxation will be applicable.

How global markets are influenced by foreign investments?

Foreign investments contribute significantly for every country’s economic growth and prosperity. However developing countries are more associated with FIIs for enhancement and improved  economic growth due to the influx of capital and increased tax revenues for the country. Host countries often try to channel FDI investment into new infrastructure and other projects to boost development. Furthermore, foreign investment can result in the transfer of soft skills through training and job creation, the availability of more advanced technology for the domestic market and access to research and development resources The local population may benefit from the employment opportunities created by new businesses .