Foreign Institutional Investors

The term Foreign Institutional Investors refers to outside investors investing in the financial markets of India.

1730 FIIs and 38 foreign brokers registered by SEBI

FIIs can individually purchase up to 10% and collectively up to 24% of the paid-up share capital of an Indian company

WHO CAN BE REGISTERED AS AN FII?

Pension Funds Mutual Funds Insurance Companies Investment Trusts Banks University Funds Foundations Charitable Trusts / Charitable Societies

Where FII can invest?

In securities such as: shares debentures warrants issued by Indian companies The schemes floated by domestic mutual funds. In government securities: treasury bills debt securities of Indian companies.

ss

Why there is need of FII ?

Higher Forex reserves Improving capital markets : Capital inflows to the equity market increase stock prices, lower the cost of equity capital and encourage the investment by Indian firms Managing uncertainty and controlling risks Promote financial innovation and development of hedging instruments Enhance competition in financial markets

P-notes are instruments issued by registered FII's to their overseas investors for investing in the Indian stock market
On issuing participatory notes, FIIs invest in the Indian market on behalf of the p-note holders p-notes serve as a short cut for foreign investors who do not want to go through the procedural formalities and the process of registering as FIIs

Participatory notes/PNs/ P-notes

PANIC BEHIND THE P-NOTES

ANONYMITY MONEY LAUNDERING MULTI LAYERING HOT MONEY Participatory-Notes positions had reached 60% of FII investments in 2007 Huge Inflow: Overheating of the market SEBI was not happy with P-Notes

P-Notes Banned

SEBI'S CONTROL ON P-NOTES

On 7th Oct 2008, SEBI announced the lifting of all earlier restrictions on P-notes. Ban was revoked but with some guidelines:

1. FII must verify the identity of investors before issuing P-Notes under KYC 2. Registered FIIs are required to reveal the identities of P-Notes investors, if SEBI asked 3. FIIs issuing P-Notes are required to report on a monthly basis to SEBI

THE OBJECTIVE WAS:

Bring in liquidity Arrest outflow of funds from Indian Capital Markets

MEASURES TAKEN BY RBI TO IMPROVE FII LIQUIDITY

Raising the ceiling for FIIs in Govt and corporate Debt by $5billion each
Increased interest rates for NRI deposits

QFI

QFI
Qualified Foreign Investors can be individuals, groups or associations based abroad who are allowed by Indian govt to invest in mutual funds and stocks of Indian companies

Last year, permitted to have direct access to Indian mutual fund schemes
1st Jan 2012, permitted to invest directly in equity markets. QFIs can buy up to 5% of the paid-up capital with overall limit capped at 10% in a company

ISSUES OF QFI
Some experts believe that it will only complicate the problem as it is adding extra class of investors After FII quota(24%) has been covered, they can invest through QFI routes It is only Short-term measure