Foreign portfolio investment ( FPI ) is basically foreigner’s investment in a country’s securities and other financial assets. In the case of Foreign Direct Investment, the investor acquires ownership in the company in which it has invested. But in FPI, the investor does not acquire any ownership in the company, and thus does not have representation in the management of the company.
To invest in Indian stock market, a foreign investor has to fulfill certain criteria and abide by certain regulations that are laid out by the Indian market regulator. The Indian market regulator is Securities and Exchange Board of India ( SEBI ). These foreign investor have to be registered with SEBI. These registered foreign investors are called Foreign Institutional Investors (FIIs ). Along with FIIs, Non- Resident Indians ( NRIs ) can also purchase shares and convertible debentures under the Portfolio Investment Scheme. FIIs include insurance companies, hedge funds, mutual funds, pension funds, charitable trusts, charitable societies, asset management companies, university funds, institutional portfolio managers.
Indian companies can also raise equity capital in the international market through the Global Depository Receipt ( GDR ) and American Depository Receipt ( ADR ). A GDR is a certificate issued by the depository bank. The company deposits a large number of its shares with a bank located in the country from where it wants to raise equity capital . The bank issues receipts against these shares. These receipts are then sold to the people of this foreign country. These receipts are listed on the stock exchanges. This is the process by which companies raise capital abroad through GDR. If the depository receipt is traded in the United States of America, then it is called American Depository Receipt ( ADR ).
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Informative!