Foreign Portfolio Investors (FPIs) are non-resident Indian investors who invest in Indian securities markets through the QFII, FII, and REP schemes. FPIs provide important liquidity to India’s capital markets and help diversify the risks in an economy that is dependent on domestic savings and investments for growth. Thus, it can be said that FPIs play an important role in the Indian economy.
What is an FPI
An FPI stands for foreign portfolio investment. The Indian government regulates and controls what types of FPI can invest in India by allowing certain types while disallowing others. FPIs can be divided into two different categories: Institutions, which include banks, insurers, mutual funds, etc., and individuals, who invest through Stock Exchanges (SEs).
FPIs have been allowed to invest in both debt and equity instruments including stocks & bonds. However, since mid-August 2014 SEs have stopped providing services to FIIs & QFIs owing to redemption pressure from FPIs; however some of them continue their trading activities through the ‘over-the-counter’ route with registered broker-dealers or directly with Listed Companies as unlisted public offers. In addition, FPIs also trade shares on the exchange through 'Block Trades' and 'Off-Market Trades.
In a Block Trade, an investor buys/sells a large number of shares in one go at a pre-decided price from/to another investor. "Off Market", Trades are trades that take place away from exchanges at negotiated prices between investors. A key factor that has led to increased interest among FPIs is India’s strong economic growth over recent years, coupled with macroeconomic stability. As per data released by SEBI on June 30th, 2015, total assets under management (AUM) of all FPIs stood at US$ 551 billion as compared to US$ 454 billion on March 31st, 2015.
What are Foreign Portfolio Investors (FPI)
Foreign portfolio investors (FPIs) refer to entities (individuals or companies) based outside India that hold Indian securities. FPIs have been playing an important role in capital markets for over 25 years now. FPIs can be classified into three categories - sub-accounts, authorized participants (APS), and reporting FIIs.
The contribution of foreign portfolio investors in the Indian stock market has risen steadily from almost nothing in the early 1990s to about 80 percent today. At present, there are 22 FIIs and 603 sub-accounts registered with SEBI. They together account for nearly 80 percent of total foreign investment in equity shares listed on BSE and NSE as of 30th June 2013.
In addition, there are 513 APs who act on behalf of FIIs/sub-accounts. In all, FPIs/FPI Groups collectively hold around Rs 9 lakh crore worth of equities in Indian markets. This is a rise from Rs 1 lakh crore at the end of 2003. In terms of numbers, it translates into annualized inflow at current prices to be around Rs 40,000 crore. This is roughly equivalent to USD 10 billion annually which is not very small by any standard given that our GDP is less than USD 2 trillion!
Why Does This Matter to YOU, the Average Investor
As an investor, understanding what type of investment a company or government entity is making can help you gain insight into where their future priorities may lie. Is it a debt issued by a corporation to fund long-term projects that will provide revenues down the road? Is it funding for short-term liquidity needs, i.e., to keep operations going until cash flows improve? Or is it being used as an outright equity investment in another firm, thereby becoming a shareholder in that other business instead of just a creditor in your own firm (or country)? The clearer you can get on how these funds are likely to be used—and how it might affect YOUR returns—the better you'll be able to make smart financial decisions. Remember: In investing, knowledge really is power!
How Do FPIs Affect Your Investment Returns
How FPIs work is simple. The issuing bank guarantees that if you hold a certain amount of funds with them for a certain period of time, it will pay you a set interest rate on those funds over that period of time. So say you invest $10,000 with an issuing bank for three years at 5%.
If at any point in those three years, your investment drops below $10,000 due to market fluctuations (volatility), you still get paid back that 5% interest on your original investment amount. Pretty cool, right? This helps cushion market swings and allows investors more consistent returns over time... but it doesn't come without its costs.
For one thing, there's often a minimum investment requirement. For another, these investments can be illiquid—meaning you can't access your money easily or quickly. In addition, some banks charge fees for early withdrawal or other actions that may affect their bottom line. These factors should all be considered before investing in FPIs because while they're great tools for smoothing out volatility and getting steady returns over time—they aren't always ideal as short-term investments.
How to Benefit From FPIs as an Individual Investor
Foreign Portfolio Investors, or FPIs, are individuals who register with SEBI (Securities Exchange Board of India) in order to invest in Indian stock markets. As an individual investor with a bank account (NRE/NRO) in India, you can buy units of a global fund that invests mostly in Indian stocks. To understand FPIs better let’s go through their purpose, structure, and types.
Read on to find out how FPIs affect your investment decisions. What is an FPI? The term ‘FPI’ refers to foreign portfolio investors which include all types of entities like hedge funds, private equity funds, mutual funds, etc. registered with SEBI. They don't include banks, financial institutions, or multinational corporations that have direct exposure to Indian markets but aren't registered as FPIs.
Conclusion
FPIs have a significant role in the Indian economy and are significantly contributing to its growth. In this blog, we discussed the various ways FPIs can be beneficial to the Indian economy. We hope you enjoyed reading this post and would love to have your feedback on this topic in the comments section. If you liked this post, please share it with a friend or family member.
FAQs
1-Who are FPIs in India?
FPIs are foreign portfolio investors or non-resident Indian investors who invest in Indian securities markets through the QFII, FII, and REP schemes. FPIs can be individuals (HUFs and companies) who are not Indian citizens living outside of India, or they can be Indian citizens living outside of India. When it comes to investing in Indian markets, FPIs are allowed to invest in a wide range of securities including stocks, bonds, money market instruments, mutual funds, and real estate investment trusts. However, FPIs are not allowed to invest in commodities, options, and currency futures.
2-What are FIIs and FPIs?
As per the latest data released by RBI, the FII/FPI investments in Equity stood at Rs.1,64,928 crore as of December 31, 2017. This works out to be 19.6% of the total market capitalization of BSE. These investments are made in the form of equity, equity-linked, or money market instruments or in the form of units of the mutual funds. These investments are either registered or unregistered.
Tags-what is FPIs, FPIs UPSC
0 Comments
please do not enter any spam link in the comment box.