Foreign Portfolio Investment (FPI) is a concept that defines the passive investment by foreign entities in India's financial assets, such as stocks, bonds, and mutual funds, without acquiring management control. Unlike Foreign Direct Investment (FDI), FPI is characterized by high liquidity and an investment limit of less than 10% of a company's paid-up equity capital for a single FPI or investor group. The origin of this capital flow in India can be traced back to the post-liberalization era, as FPI was not common before 1991 due to restrictive financial policies. The formal regulatory structure began with the Foreign Institutional Investors (FIIs) regime under the SEBI (Foreign Institutional Investors) Regulations, 1995.
The mechanism requires a foreign entity to register as an FPI with the Securities and Exchange Board of India (SEBI) through a Designated Depository Participant (DDP). The regulatory framework is primarily the SEBI (Foreign Portfolio Investors) Regulations, 2019, which repealed the SEBI (Foreign Portfolio Investors) Regulations, 2014, to simplify compliance and registration. FPI is closely connected to the Foreign Exchange Management Act, 1999 (FEMA), which governs foreign exchange transactions, and the Reserve Bank of India (RBI), which oversees foreign exchange aspects and investment limits. Taxability is governed by Section 115AD of the Income Tax Act, 1961.
A significant recent change was the introduction of targeted relaxations for FPIs investing exclusively in Government Securities (GS-FPIs) in August 2025, exempting them from certain disclosure and reporting requirements. The core principle of passive investment and the 10% limit, which triggers re-classification as FDI if exceeded, remains a constant provision.