Foreign Portfolio Investments

What are Foreign Portfolio Investments (FPI)?

• Foreign portfolio investment (FPI) consists of securities and other financial assets passively held by foreign investors.
• It lets an investor purchase stocks, bonds or other financial assets in a foreign country.
• Foreign portfolio investment is part of a country’s capital account and shown on its balance of payments (BOP).

Features of FPI:

• FPI include Foreign Institutional Investments, Depository Receipts and Offshore funds etc. Of these Depository receipts can be held by individuals from foreign countries.
• In India, FPIs are allowed to invest in various debt market instruments such as government bonds, treasury bills, state development loans (SDLs) and corporate bonds, but with certain restrictions and limits.
• FPI does not provide the investor with direct ownership of financial assets and is relatively liquid depending on the volatility of the market.
• However, since the investor’s goal is to create a quick return on his money, FPI is more liquid and less risky than FDI.

Prelims Question

Consider the following statements regarding “foreign portfolio investments” (FPIs):
1.FPIs are not allowed to invest in Government securities in India.
2.Foreign portfolio investment is part of a country’s capital account.
Which among the above statements is/are correct?
(a)1 only 
(b)2 only 
(c)Both 1 and 2
(d)Neither 1 nor 2

Answer to prelims question