Foreign Institutional Investor [FII] is used to denote an investor – mostly of the form of an institution or entity, which invests money in the financial markets of a country different from the one where in the institution or entity was originally incorporated. Institutional investors include hedge funds, insurance companies, pension funds and mutual funds. It is a hot money as it can leave the country at the same speed at which it comes in.
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. One of the major market regulations pertaining to FIIs involves placing limits on FII ownership in Indian companies.
As per the current guidelines of the RBI,FII can invest upto 24% in a company but if they want further investment the need special approval from the company’s board and in any case cannot go beyond the foreign investment cap for the sector, set by the government. Even for sectors like insurance, where the government is considering raising the foreign investment cap to 49% against 26% in present, there is ambiguity about whether FII investment should be subsumed in it.
FII can invest in all the securities traded in the primary and secondary market, including the equity and other securities/instruments of companies which are listed/to be listed on the Stock Exchanges in India including the OTC Exchange of India. These would include shares, debentures, warrants, and the schemes floated by domestic Mutual Funds. Government may even like to add further categories of securities later from time to time.
GENERAL POINTS ABOUT FII:
- An application for registration has to be made in Form A, the format of which is provided in the SEBI(FII) Regulations, 1995 and submitted with under mentioned documents in duplicate addressed to SEBI as well as to Reserve Bank of India (RBI)
- As per Regulation 6 of SEBI (FII) Regulations,1995, Foreign Institutional Investors are required to fulfill the following conditions to qualify for grant of registration.
- The applicant is required to have the permission under the provisions of the Foreign Exchange Management Act, 1999 from the Reserve Bank of India.
- For granting registration to the FII, SEBI shall take into account the track record of the FII, its professional competence, financial soundness, experience and such other criteria that may be considered by SEBI to be relevant.
- SEBI and RBI initial registration for valid for five year. Both will be renewable for similar five year periods later on.
- A registered FII would be expected not to engage in any short selling in securities and to take delivery of purchased and give delivery of sold securities.
- A registered FII would be expected not to engage in any short selling in securities and to take delivery of purchased and give delivery of sold securities.
- Applicant must be legally permitted to invest in securities outside the country or its in-corporation / establishment.
- Reserve Bank of India may at any time request by an order a registered FII to submit information regarding the records of utilization of the inward remittances of investment capital and the statement of securities transactions
- FII can transfer sums from the foreign currency accounts to the rupee account and vice-versa, at the market rate of exchange.
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