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Investment
by Foreign Institutional Investors
10B.4 (i)
Foreign Institutional Investors (FIIs) including pension funds, mutual
funds, investment trusts, university funds, endowments, foundations or
charitable trusts or charitable societies, etc. are permitted to invest
in all securities, i.e. equity shares/debentures/ PCDs/FCDs/Rights renunciations/warrants
of Indian companies (other than Banking Companies) listed as well as unlisted,
dated Government securities, Treasury bills and units of domestic mutual
fund schemes in the primary and secondary markets. Investments by FIIs
will be subject to a ceiling of 24% of the total paid up equity capital
of the company. The ceiling would apply to all holdings taken together
including conversions out of the fully and partly convertible debentures
issued by the company. The holding of a single FII or each SEBI approved
sub-account of an FII or the concerned FII group in any company would
also be subject to a ceiling of 10% of the total issued and paid up capital
of the company. Indian companies, however, would be permitted to raise
the normal ceiling limit of 24% to 40% of the issued and paid up capital
of the company provided it has been approved by the Board of Directors
of the company and a Special Resolution is passed to that effect by the
General Body. The ceiling of 24% or 40%, as the case may be, applicable
for investment by FIIs will not include investments made by NRIs/OCBs
under the Portfolio Investment Scheme. It will also not include direct
foreign investment by an FII as a foreign collaborator and investment
by FIIs through off-shore funds, Global Depository Receipts and Euro -
Convertible Bonds.
(ii)
FIIs are required to register themselves with Securities and Exchange
Board of India (SEBI) before they invest in the Indian capital market.
Application for registration should be made by FIIs to SEBI in the prescribed
form in duplicate. One copy of the application will be forwarded by SEBI
to Reserve Bank. Reserve Bank will grant permission under FERA 1973 to
the bank branch designated by the applicant FII to buy/sell equity shares/debentures/warrants/dated
Government securities/Treasury Bills/units of domestic mutual funds. Reserve
Bank's permission will be initially valid for five years and will be operative
only after obtaining registration from SEBI. This permission can be renewed
for a further period of five years on request. Reserve Bank's permission
would enable the FIIs to buy/sell the securities and remit the income/dividend/sale
proceeds after payment of applicable taxes through the designated bank
branch. Reserve Bank's permission will also cover investment in shares/debentures
of Indian companies in primary market i.e. new issues provided the company
has reserved certain quota out of its public issue in favour of FIIs.
The designated bank branch is required to submit to Reserve Bank a statement
in form LEC(FII) on daily basis in respect of purchases/sales of
shares/debentures made for the purpose of monitoring by Reserve Bank the
overall ceiling of 24% or 40%, as the case may be, referred to in sub-paragraph
(i).
(iii) In order
to facilitate making of investments in India and repatriation of income/sale
proceeds of such investments, Reserve Bank will permit the designated
bank to open a foreign currency denominated account and a special Non-resident
Rupee account in the name of FII. The designated bank branch will also
be permitted (a) to transfer funds from foreign currency account to rupee
account and vice versa, (b) to make investments out of the balance in
the rupee account, (c) to credit sale proceeds of shares and other investments
as also dividend/interest earned on the investments to the rupee account
and (d) to transfer the repatriable proceeds (net of taxes) from the rupee
account to the foreign currency account.
(iv) Reserve
Bank vide its Notification No.F.E.R.A.212/99-RB dated 18th October 1999
has granted general permission to mutual funds in India to issue units
or similar instruments to FIIs under the schemes approved by Securities
and Exchange Board of India and to send such units/instruments out of
India to their global custodians, as also to repurchase units/instruments
from FIIs (cf. paragraph 10C.16A).
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