A Foreign Portfolio Investor (FPI) is a type of investor institution or entity registered under the Securities and Exchange Board of India (FPI) Regulations, 2019, that invests in Indian financial assets like shares, bonds, and mutual funds, without seeking management control. The concept was created to rationalize and simplify the regulatory framework for foreign investment, replacing the earlier multiple routes of Foreign Institutional Investors (FIIs), Sub-Accounts, and Qualified Foreign Investors (QFIs). The FPI regime was notified on January 7, 2014, with the SEBI (FPI) Regulations, 2014, and came into effect on June 1, 2014, based on the recommendations of a committee chaired by Shri K. M. Chandrasekhar.
The key mechanism is that an FPI's investment in a single Indian company cannot exceed 10% of the company's total paid-up equity capital, as exceeding this threshold reclassifies the investment as Foreign Direct Investment (FDI). FPIs must obtain a registration certificate granted by a Designated Depository Participant (DDP) on behalf of SEBI. The regulations categorize FPIs into two types, Category I and Category II, with Category I including government-related investors and appropriately regulated entities, which have relaxed eligibility criteria. FPIs are permitted to invest in a range of securities, including listed and to-be-listed shares, derivatives, and debt instruments as permitted by the Reserve Bank of India (RBI).
The SEBI (FPI) Regulations, 2019, replaced the 2014 regulations on September 23, 2019, to further ease the registration process and compliance requirements. The 2019 regulations re-categorized the earlier three FPI categories into two and removed the clause relating to "opaque structure". FPIs are closely connected to the Foreign Exchange Management Act, 1999 (FEMA), as the investment limits and rules for non-debt instruments are governed by the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019. Recent amendments, such as those in August 2021, have allowed non-resident Indians and resident Indian individuals to be constituents of an FPI under certain conditions. Furthermore, the RBI has introduced reforms, including the removal of short-term investment limits for FPIs in Government Securities (G-Secs) under the General Route, to deepen the sovereign debt market.