Introduction:

foreign portfolio investment is the entry of funds into a country where foreigners make purchases in the countrys stock and bond markets. It is a usually short term investment as opposed to the longer term Foreign Direct Investment partnership (possibly through joint venture), involving transfer of technology and "know-how FPI represents passive holdings of securities none of which entails active management or control of the securities' issuer by the investor. FPI is much more volatile than FDI. The foreign exchange management Act 2000 defines foreign portfolio investment as buying and selling of shares, convertible debentures of indian companies and units of mutual funds at any of the Indian stock exchanges.

 private flows are the major sources of capital, with FDI and FPI being the dominant components in Indian economy The Reserve Bank of India has granted general permission to SEBI Registered FIIs to invest in India under the Portfolio Investment Scheme (PIS). The Reserve Bank of India has granted general permission to SEBI Registered FIIs to invest in India under the Portfolio Investment Scheme (PIS). Global Depository Receipts (GDRs)/American Depository Receipts (ADRs), foreign institutional investors (FIIs), offshore funds, etc). India has been participating in the Coordinated Portfolio Investment Survey (CPIS). the NRI/ PIO has to apply to a designated branch of a bank, which deals in Portfolio Investment. All sale/ purchase transactions are to be routed through the designated branch.

 An NRI or a PIO can purchase shares up to 5 per cent of the paid up capital of an Indian company. All NRIs/PIOs taken together cannot purchase more than 10 per cent of the paid up value of the company. This limit can be increased by the Indian company to 24 per cent by passing a General Body resolution. The sale proceeds of the repatriable investments can be credited to the NRE/ NRO, and the sale proceeds of nonrepatriable investment can be credited only to NRO accounts. private flows are the major sources of capital, with FDI and FPI being the dominant components, and flows have become more subject to sharp boom swings.

HISTORY
In 1992,India opened up its economy and allowed foreign portfolio investment in its domestic stock market. Since then FPI has emerged as a major source of private capital inflow in India. India is more dependent upon FPI than on FDI as a source of foreign investment. As on 31 March 2006, the SEBI had registered FIIs from 37 countries and for United states it was 342. The objective was to improve the BOP at sustainable levels by liberalising international trade,finance and capital inflows, and by instituting an appropriate exchange regime.

 In Asia, for the five more advanced countries of East Asia (Indonesia, Malaysia, the Philippines, the Republic of Korea and Thailand) FPI was the most important source of capital, in contrast to the rest of Asia IMF balance of payments data on capital flows, for the period 1991-1998, FDI and FPI represented about 90% (respectively 51% and 39%) of total capital flows to emerging markets.