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What is Foreign Portfolio Investment?
Foreign Portfolio Investment (FPI) involves an investor buying foreign financial assets. It involves an array of financial assets like fixed deposits, stocks, and mutual funds. All the investments are passively held by the investors. Investors who invest in foreign portfolios are known as Foreign Portfolio Investors.
Foreign Portfolios increase volatility in investment as a result, it leads to increased risk. The intent of investing in foreign markets is to diversify the portfolio and get some handsome return on investments. Investors expect to receive high returns owing to the risk they’re willing to take. Foreign Portfolio Investment is a prominent investment alternative nowadays. From individuals and businesses to even Governments invest in Foreign Portfolios.
This article will take you through the benefits of foreign portfolio investment, categories of foreign portfolio investment, criteria of FPI, and various risks associated with it.
Benefits of Foreign Portfolio Investment
Investment Diversity
FPI provides investors an opportunity to diversify their portfolio. As an investor, you can diversify your portfolio to achieve high returns. Suppose if you incur major losses in the investment assets of Country X, you can accrue profits in the investment assets of a country Y. In this way, you can experience less volatility in your investments and increase the chances of profits.
International Credit
Investors can get access to increased amounts of credit in foreign countries. They can broaden their credit base. By expanding their credit base, investors can secure their line of credit. In case the domestic credit score is unfavorable, having an international credit score can be beneficial. This allows the investor to utilize more leverage and get high returns on equity investment.
Access to a Bigger Market
Sometimes, the foreign market can be less competitive than the domestic market. Hence, FPI gives you an exposure to a wider market. The foreign markets are comparatively less saturated and hence, they may offer higher returns and more diversity as well.
High Liquidity
Foreign Portfolio Investments provides high liquidity. An investor can buy and sell foreign portfolios seamlessly. This offer buying power for investors to act when good buy opportunities arise. Investors can buy and sell trades in a quick and seamless manner.
Exchange Rate Benefit
An investor can leverage the dynamic nature of international currencies. Some currencies can drastically rise or fall, and a strong currency can be used in the investor’s favor.
Categories in Foreign Portfolio Investment
One can register FPI in one of the below categories:
Category I: This includes investors from the Government sector. Such as central banks, Governmental agencies, and international or multilateral organizations or agencies.
Category II: This category includes:
Regulated broad-based funds such as mutual funds, investment trusts, insurance/reinsurance companies.
Also include regulated banks, asset management companies, portfolio managers, investment advisors, and managers.
Category III: It includes those who are not eligible in the first two categories. It includes endowments, charitable societies, charitable trusts, foundations, corporate bodies, trusts, individuals.
Who Regulates FPI in India?
Securities and Exchange Board of India (SEBI) operates the FPIs. Recently, SEBI has introduced the Foreign Portfolio Investors Regulations, 2019. FPIs also need to follow the Income-tax Act, 1961 and Foreign Exchange Management Act, 1999.
Eligibility Criteria for Foreign Portfolio Investment
An individual must fulfill the following conditions to register as FPI:
As per the Income-tax Act 1961, the applicant should not be a non-resident Indian
Should not be a citizen of a country that falls under the public statement of FATF.
Must be eligible to invest in securities outside the country.
To invest in securities, he/she must have the approval of the MOA / AOA / Agreement.
A certificate that the applicant holds an interest of the development of the securities market.
In case the bank is the applicant, it must belong to a nation whose central bank is a member of the Bank for International Settlements.
Factors Affecting Foreign Portfolio Investment
Here are some factors affecting Foreign Portfolio Investment:
Growth Prospects
The economy of a country plays a crucial role in foreign investments. If an economy is robust and growing, investors are more inclined to invest in the financial assets of that country. On the other hand, if the country goes through a financial turmoil or a recession, investors tend to withdraw their investments.
Interest Rates
Investors yearn for a high return on investment. Hence, investors prefer to invest in countries with high interest rates.
Tax Rates
The tax is levied on capital gains. Higher tax rates reduces the return on investments. Hence, investors prefer to invest in countries which have lower tax rates.
Risks Involved in Foreign Portfolio Investment
Foreign Portfolio Investments has some risks associated with it – for both the investors and the destination country. Here are a few risks involved in it:
Political Risk Exposure
The change in the political environment may give rise to political risk. This results in a change of investment criteria, economic policies, and repatriation regulations.
Low Liquidity
In developing countries, capital market liquidity often tends to be low resulting in a higher price volatility.
NSE BSE Stock Market
The Indian capital market witnessed nascence about 135 years ago with the formation of a broking firm what is today called the BSE (Bombay Stock Exchange). This bourse played an instrumental role in elevating the status of the Indian economy as well as growth of some of the honchos of the industry. Another bourse that has equally carved a niche is the NSE (National Stock Exchange). There are a few other stock exchanges in the country, but it is the NSE BSE that holds prominence and attention at the national and global level. No market news is complete without mention of NIFTY and the Sensex, both indices of the NSE BSE respectively.
Simplification Of Trading in The NSE BSE Market
Initially, NSE and BSE stocks did not attract many investors due to complex processes and limited access to information, updates, and guidance. With the advent of online trading, these issues were resolved, leading to a rapid increase in investors. Today, companies listed on the NSE and BSE sell thousands of shares daily, raising funds for expansion and related activities.
Swimming Against Volatility Of NSE BSE Market
The Indian stock market is often interpreted as the NSE BSE market. Investments are subject to market risks; it is volatility that determines the rising and falling prices of stocks. Here, you can have access to the A-Z of information related to the NSE and BSE. Our commitment is to serve you and guide you towards achieving your trading goals.
What is Foreign Portfolio Investment?
Foreign Portfolio Investment (FPI) involves an investor buying foreign financial assets. It involves an array of financial assets like fixed deposits, stocks, and mutual funds. All the investments are passively held by the investors. Investors who invest in foreign portfolios are known as Foreign Portfolio Investors.
Foreign Portfolios increase volatility in investment as a result, it leads to increased risk. The intent of investing in foreign markets is to diversify the portfolio and get some handsome return on investments. Investors expect to receive high returns owing to the risk they’re willing to take. Foreign Portfolio Investment is a prominent investment alternative nowadays. From individuals and businesses to even Governments invest in Foreign Portfolios.
This article will take you through the benefits of foreign portfolio investment, categories of foreign portfolio investment, criteria of FPI, and various risks associated with it.
Benefits of Foreign Portfolio Investment
Investment Diversity
FPI provides investors an opportunity to diversify their portfolio. As an investor, you can diversify your portfolio to achieve high returns. Suppose if you incur major losses in the investment assets of Country X, you can accrue profits in the investment assets of a country Y. In this way, you can experience less volatility in your investments and increase the chances of profits.
International Credit
Investors can get access to increased amounts of credit in foreign countries. They can broaden their credit base. By expanding their credit base, investors can secure their line of credit. In case the domestic credit score is unfavorable, having an international credit score can be beneficial. This allows the investor to utilize more leverage and get high returns on equity investment.
Access to a Bigger Market
Sometimes, the foreign market can be less competitive than the domestic market. Hence, FPI gives you an exposure to a wider market. The foreign markets are comparatively less saturated and hence, they may offer higher returns and more diversity as well.
High Liquidity
Foreign Portfolio Investments provides high liquidity. An investor can buy and sell foreign portfolios seamlessly. This offer buying power for investors to act when good buy opportunities arise. Investors can buy and sell trades in a quick and seamless manner.
Exchange Rate Benefit
An investor can leverage the dynamic nature of international currencies. Some currencies can drastically rise or fall, and a strong currency can be used in the investor’s favor.
Categories in Foreign Portfolio Investment
One can register FPI in one of the below categories:
Category I: This includes investors from the Government sector. Such as central banks, Governmental agencies, and international or multilateral organizations or agencies.
Category II: This category includes:
Regulated broad-based funds such as mutual funds, investment trusts, insurance/reinsurance companies.
Also include regulated banks, asset management companies, portfolio managers, investment advisors, and managers.
Category III: It includes those who are not eligible in the first two categories. It includes endowments, charitable societies, charitable trusts, foundations, corporate bodies, trusts, individuals.
Who Regulates FPI in India?
Securities and Exchange Board of India (SEBI) operates the FPIs. Recently, SEBI has introduced the Foreign Portfolio Investors Regulations, 2019. FPIs also need to follow the Income-tax Act, 1961 and Foreign Exchange Management Act, 1999.
Eligibility Criteria for Foreign Portfolio Investment
An individual must fulfill the following conditions to register as FPI:
As per the Income-tax Act 1961, the applicant should not be a non-resident Indian
Should not be a citizen of a country that falls under the public statement of FATF.
Must be eligible to invest in securities outside the country.
To invest in securities, he/she must have the approval of the MOA / AOA / Agreement.
A certificate that the applicant holds an interest of the development of the securities market.
In case the bank is the applicant, it must belong to a nation whose central bank is a member of the Bank for International Settlements.
Factors Affecting Foreign Portfolio Investment
Here are some factors affecting Foreign Portfolio Investment:
Growth Prospects
The economy of a country plays a crucial role in foreign investments. If an economy is robust and growing, investors are more inclined to invest in the financial assets of that country. On the other hand, if the country goes through a financial turmoil or a recession, investors tend to withdraw their investments.
Interest Rates
Investors yearn for a high return on investment. Hence, investors prefer to invest in countries with high interest rates.
Tax Rates
The tax is levied on capital gains. Higher tax rates reduces the return on investments. Hence, investors prefer to invest in countries which have lower tax rates.
Risks Involved in Foreign Portfolio Investment
Foreign Portfolio Investments has some risks associated with it – for both the investors and the destination country. Here are a few risks involved in it:
Political Risk Exposure
The change in the political environment may give rise to political risk. This results in a change of investment criteria, economic policies, and repatriation regulations.
Low Liquidity
In developing countries, capital market liquidity often tends to be low resulting in a higher price volatility.
NSE BSE Stock Market
The Indian capital market witnessed nascence about 135 years ago with the formation of a broking firm what is today called the BSE (Bombay Stock Exchange). This bourse played an instrumental role in elevating the status of the Indian economy as well as growth of some of the honchos of the industry. Another bourse that has equally carved a niche is the NSE (National Stock Exchange). There are a few other stock exchanges in the country, but it is the NSE BSE that holds prominence and attention at the national and global level. No market news is complete without mention of NIFTY and the Sensex, both indices of the NSE BSE respectively.
Simplification Of Trading in The NSE BSE Market
Initially, NSE and BSE stocks did not attract many investors due to complex processes and limited access to information, updates, and guidance. With the advent of online trading, these issues were resolved, leading to a rapid increase in investors. Today, companies listed on the NSE and BSE sell thousands of shares daily, raising funds for expansion and related activities.
Swimming Against Volatility Of NSE BSE Market
The Indian stock market is often interpreted as the NSE BSE market. Investments are subject to market risks; it is volatility that determines the rising and falling prices of stocks. Here, you can have access to the A-Z of information related to the NSE and BSE. Our commitment is to serve you and guide you towards achieving your trading goals.
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Explore our FAQs to find answers to common questions about investment and portfolio diversification.
What services does PROSPERA Capital Fund provide?
PROSPERA Capital Fund offers diverse investment strategies, including FPI, portfolio diversification, economic channel investments, and growth-targeted financial planning. Our expert team collaborates with you to create customized strategies aligned with your goals.
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Booking a consultation is simple. Complete our form or give us a call.
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At PROSPERA Capital Fund, we know how crucial it is to track your investments. We provide regular performance reports and our advisers are always on hand to address your questions or concerns.
Empower Your Future with Expert Investment Strategies
Welcome to PROSPERA Capital Fund, a leading investment fund specializing in growth. Our experts diversify your portfolio through Foreign Portfolio Investment (FPI) and tailored economic strategies. Secure your financial growth, contact us today.