POWERPOINT

PRESENTATION ON FIIs
TOPIC
GUIDELINES AND REGULATIONS OF FOREIGN
INSTITUTIONAL INVESTORS
 GUIDELINES OF FIIs
• 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(SEBI) and
obtain RBI approval under FERA.
• The different forms in which the portfolio investment flows into the country
are global depository receipts, investment in primary and secondary
markets, offshore funds and government deposits. 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 end Mar
2002)
• There is no restriction on amount of investment; and there is no lock-in
period.
• Portfolio investments by the FIIs in the primary and secondary are
subject to an overall ceiling of 30 percent of the issued share capital in
any company and the FIIs are required to allocate their total
investment between equities and debentures in the ratio of 70:30 FIIs
can make purchase and sales only for delivery. A FII cannot engage in
short sales.
• FIIs investing under the scheme enjoy a concessional tax rate of 20
percent on dividend and interest and 10 percent on long-term capital
(held for more than one year).
• Short-term capital gains arising out of transfer of securities
are taxed at 30 percent. Tax is deducted at 20 percent on
interestand dividends.
• Disinvestment should be through stock exchanges in India.
A custodian appointed should be appointed.( should be an
agency approved by SEBI)
• He would act as custodian of securities and for
confirmation of transactions in securities,settlement of
purchase and sale and for information reporting.
• The custodian will report to RBI and SEBI annually.
Finally,a bank account with allotted number in designated
currencyshould be opened.
 FIIs INVESTMENTS IN GOVT.
SECURITIES
• FIIs will be allowed to invest in dated securities of all
maturities of both Central and State governments but not
in treasury bills .RBI clarified that FIIs can operate both in
primary and secondary markets. The transactions will be
governed by the RBI's delivery versus payment systems.
• Interests on debt instruments is taxed at 20%.
• The entry of FIIs into guilt trading will add depth to the
securities market and push the yield downwards since
their entry will push up demand.
FOREIGN BROKERS (SEBI GUIDELINES
15.10.1993)

• To facilitate operations of FIIs and encourage investment

foreign brokers registered with SEBI are allowed to assist,
registered FIIs in their dealings in securities.
• As registered FIIs are familiar with their own brokers, it's
expected that this step will help FIIs to deal more easily in
our markets.
• The guidelines stipulate that the foreign broker will be
allowed to assist and operate only on behalf of the
registered FII and will not act as principal. He has to
transmit orders to a member of an Indian Stock
Exchange.
• The contract notes will be issued by the member of stock
exchange to the foreign broker with the name or code of
FII. RBI gives the necessary permission to the foreign
broker to open a foreign currency denominated bank
account and a rupee account with a designated bank
branch.
• He has to bring inward remittances in foreign currency.
• Registered brokers are also permitted by RBI to open
custodian accounts with each of the custodian of the
registrar, FII on whose behalf he would be operating.
• Deliveries and receipt of securities through the custodians
have to be effected within 48 hours.The foreign broker
custodian account will be a balancing account and will be
monitored by SEBI.
• Taking advantage of the provision allowing 100% foreign
equity in non-banking financial services companies and
with identifiable Indian broking partners, 35 foreign
brokers have set up shop.
• The foreign brokers can tap global sources finance and
broking house tend to be giant corporations.
• They have also been able to attract the management of
Euro business because of their capability and on the
whole they are making good money. This has led to
considerable heart burn and complaints from Indian
brokers who tend to be tiny partnerships lacking funds.
 SEBI (FIIs) 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,
The applicant's track record, professional competence,
financial soundness, experience, general reputation of
fairness and integrity;
Whether the applicant is regulated by appropriate foreign
regulatory authority;
Whether the application has been granted permission by
RBI under Foreign Exchange Regulation Act for making
investments in India as a foreign institution investor, and
Where the applicant is,
• an institution established or incorporated outside India as
a pension fund, mutual fund or investment trust; or
• 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.
The certificate is granted in Form-B subject to
payment of prescribed fees which is valid for 5years
and can be renewed thereafter.
Provision is also made for registeration of
subaccounts on whose behalf FII proposes to make
the investment in India.
The purchase of shares of each company should not
be more than ten percent of the total issued capital of
the company.
The investment by foreign institutional investors is also
subject to GOI Guidelines.
The general obligations and responsiblities of FIIs include
appointment of domestic custodian, appointment of
designated bank, maintenance of proper books of
accounts, records and their preservation for five years
and information to the Board or Reserve Bank of India.
Defaults are punished by suspension and cancellation of
certificate after show cause notice and enquiry.