Foreign Portfolio Investors

iasparliament Logo
June 13, 2023

Why in news?

SEBI floated a consultation paper that proposed additional disclosures from Foreign Portfolio Investors (FPIs).

Who is a Foreign Portfolio Investor (FPI)?

  • Foreign Portfolio Investment (FPI) involves holding financial assets from a country outside of the investor's own.
  • FPI holdings can include stocks, ADRs, GDRs, bonds, mutual funds, and exchange traded funds.
  • Foreign Portfolio Investors have only passive ownership.
  • Investors have no control over ventures or direct ownership of property or a stake in a company.
  • Investments of NRIs don’t come under FPI.

What are the pros and cons of FPI?

pros and cons

What are the differences between FPI and FDI?

  • Both Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI) are common ways for investors to participate in an overseas economy but has few distinct differences.


Foreign Direct Investment (FDI)

Foreign Portfolio Investment (FPI)


Investment made by foreign investors to obtain a substantial interest in the enterprise located in a different country.

Investing in the financial assets of a foreign country, such as stocks or bonds available on an exchange.


Direct Investment

Indirect Investment


Inflows in primary market

Inflows in secondary market

Role of Investors

Active Investor

Passive Investor

Degree of Control

High control

Very low control


Long term investment

Short term investment

Investment is done on

Physical assets of the foreign country

Financial assets of the foreign country

Entry and Exit


Relatively easy

Risks Involved



What is the purpose of the proposal?

  • To guard against possible circumvention of the requirement pertaining to Minimum Public Shareholding (MPS)
  • To prevent the misuse of the FPI route to circumvent the requirements listed Press note 3.
  • To identify tangible ownership and curtail incidences of multiple routes being used to acquire ownership in a company.
  • To keep up with the minimum public shareholding norms and reduce regulatory requirements.

What are the proposals made in SEBI’s consultation paper?

  • The proposed regulations would enhance transparency, fully identifying objective ownership of an entity in a holding.
  • The proposed legislation categorises FPIs into low risk, moderate risk and high risk.
  • High Risk FPIs - FPIs holding more than 50% of their equity asset under management (AUM) in a single corporation or with an overall holding in Indian equity markets of over Rs 25,000 crore.
  • High-risk FPIs would have to make additional disclosures under this proposal.
  • Existing operational FPIs should disclose within 3 month, failing which the FPI should bring down its AUM below the threshold within the time frame.
  • Failure - Any high-risk FPI which fail to provide the disclosures wherever required would render the registration of the FPI invalid.
  • Exception - New FPIs and existing FPIs that are winding down would be allowed to breach the threshold criteria up to a period of 6 months, after which disclosure in mandatory.


  1. The Hindu - Why is SEBI asking for more disclosures from FPIs?
  2. IE - SEBI proposes additional disclosure for high-risk FPIs
Login or Register to Post Comments
There are no reviews yet. Be the first one to review.



Free UPSC Interview Guidance Programme