Who regulates FPI in india

FPI

Key points to remember about FPI

• FPI refers to investments made by foreign investors in financial assets like stocks, bonds, and mutual funds of a foreign country without having direct control over the business operations.
• Since FPI entails the purchase and sale of easily traded, liquid assets like securities, it is generally regarded as a short-term investment.
• FPI brings foreign capital to the host country, increasing liquidity in financial markets and supporting economic growth.
• Unlike Foreign Direct Investment (FDI), FPI investors do not have ownership or decision-making power in the companies they invest in.
• Due to their sensitivity to international political and economic developments, FPI flows are susceptible to abrupt inflows or outflows, which may have an effect on a nation's financial markets.

Explanation for FPI

Imagine you have a friend named Riya, who owns a food truck in your city. Riya’s food truck is famous for its delicious burgers, and she wants to expand her business to more locations. But she doesn’t have enough money to buy another food truck. 

Now, here comes her distant cousin, Aryan, who lives abroad. Aryan has extra money saved up, and he believes in Riya’s business.

"Riya, I'll give you some money to buy another food truck, but I don't want to run it," Aryan adds in reference to his investment plan. Rather, I will invest in your company and acquire a modest stake in it. I'll receive a portion of any earnings your company makes." 

Riya believes that it's a fantastic concept since She receives the funding she requires to grow. Her food truck isn't being taken over by Aryan. As her company expands, Aryan gains.

How This Connects to Foreign Portfolio Investment (FPI): 

In reality, foreign investors, such as Aryan, invest in stocks or companies in other nations, such as Riya's food truck.

For instance: 

One of the largest Indian corporations, Reliance Industries, had its shares purchased by a foreign investment firm in 2021.

Although they had no control over Reliance, they made money as it prospered.

Now who regulates FPI

The Securities and Exchange Board of India (SEBI) regulates Foreign Portfolio Investors (FPIs) in India.

Key Functions of SEBI in Regulating FPIs:

Registration:

SEBI requires FPIs to register under the SEBI (Foreign Portfolio Investors) Regulations, 2019.

Investment Guidelines:

Subject to sectoral caps, FPIs are permitted to invest in mutual funds, listed stocks, debt instruments, and some unlisted securities. SEBI makes sure that these rules are followed.

Monitoring and Compliance:

SEBI monitors the investments of FPIs to prevent violations of Indian laws, such as insider trading and market manipulation.

FPIs must comply with know-your-customer (KYC) norms.

Taxation Rules:

To enforce tax laws pertaining to FPIs, SEBI works with the Central Board of Direct Taxes (CBDT).

Ownership Limits:

In addition to enforcing sector-specific foreign investment restrictions, SEBI guarantees listed businesses' aggregate FPI limitations of 10% for individuals and 24% for all FPIs combined.

Market Surveillance:

SEBI ensures FPIs operate within the framework to maintain market integrity and protect investor interests.

By overseeing these aspects, SEBI ensures the smooth functioning of FPI operations in India's financial markets.