FIIs (Foreign Institutional Investors)
GUIDELINES
OF GOVERNMENT OF INDIA
Government of India
through Guidelines issued on September 14, 1992 has allowed reputed foreign
Institutional Investors (FIIs) including pension funds, mutual funds, asset
management companies, investment trusts, nominee companies and incorporated or
institutional portfolio managers to invest in the India capital market subject
to the condition that they register with the Securities and Exchange Board of
India and obtain RBI approval under FERA. The different forms in which the
portfolio investment flows into the country are global depository receipts (GDR’s),
investment in primary and s securities. At the end of March 2000, 506 FIIs were
registered with SEBI. Their total cumulative investment in securities market
was Rs.57,038 crores as at March 2002. Of the FIIs only 205 were active and 10
% accounted for 70% of transactions. There is no restriction on amount of
investment and there is no lock in period. Portfolio investment by the FIIs are
required to allocate their total investment between equities and debentures in
the ratio of 70:30. FII s can make purchases and sales only for delivery. A FII
cannot engage in short sales. FII investing under the scheme, enjoy a
confessional tax rate of 205 on dividend and interest and 10% on long term
capital gains short term capital gains arising out of transfer of securities
are taxed at 30%. Tax is deducted at 20% on interest and dividends.
1 FII and SEBI Regulations, 1995
The regulations
stipulate that foreign institutional investors have to be registered with SEBI
and obtain a certificate from SEBI. For the purpose of grant of the certificate
SEBI takes
into account, 1. The
applicant’snancialtracksoundness, recor experience, general reputation of
fairness and integrity 2. Whether the applicant is regulated by
appropriate foreign
regulatory authority 3. Whether the applicant has been granted permission by
RBI under Foreign Exchange Regulating Act for making investments in India as a
foreign institutional investor and 4. Where the applicant is, a. an institution
established or incorporated outside India as a pension fund, mutual fund or
investment trust ; or b. an asset management company or nominee company or bank
or institutional portfolio manager, established or incorporated outside India
and proposing to make investments in India on behalf of broad based funds; or
c. A trustee or power of attorney holder established or incorporated outside
India and proposing to make investments in India on behalf of broad based
funds. The certificate is granted in Form B subject to payment of prescribed
fees which is valid for 5 Years and can be renewed thereafter.
Preferential Allotments
To FIIs Listed companies have been allowed by SEBI to make
preferential allotment to registered FIIs subject to certain conditions. A
company desiring to make a preferential allotment should obtain t accordance
with ceilings of 10% of total issued capital for individual FII and 30% of all
FIIs and nonresident Indian investors. The preferential allotment should be
made at a price not less than the highest price during the last 26 weeks on all
stock exchanges where the company securities are listed. NRI The term
NRI includes the following categories of persons:
1. Indian
national holding Indian passports with non-resident status (INNR),
2.
Person of Indian origin, foreign
nationals of Indian origin, living in foreign countries including such persons
of Indian origin as is in the status of stateless, because no foreign country
has as yet accepted them as their national and they are not Indian national either
by birth or residence, (FNIO). The term NRI also includes companies,
partnership firms, trusts, societies and other corporate bodies called OCBs
where 60% of the equity is owned by the NRIs.
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