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Chapter: Business Science - Merchant Banking and Financial Services - Issue Management Introduction

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FIIs (Foreign Institutional Investors)

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.

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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