Foreign Institutional Investor, Incorporation of Foreign Institutional Investor in India. A Foreign Institutional Investor (FII) means an entity established outside India and which proposes to make investment in India in securities. Foreign entities, willing to invest in India as FIIs, should first register themselves with the Securities and Exchange Board of India (SEBI). A wide range of foreign entities are allowed to register themselves as FIIs such as pension funds, mutual funds, insurance companies, investment trusts, banks, university funds, endowments, foundations, sovereign wealth funds, hedge funds and charitable trusts.
In fact, asset management companies, investment managers, advisors or institutional portfolio managers set up and/or owned by NRIs are also eligible to be registered as FIIs. FIIs are not only allowed to invest in securities traded in primary and secondary markets, but also in mutual funds, dated government securities and derivatives traded on stock exchange. As already discussed, Indian economy offers huge potential for FIIs to invest in India.
Formation of Foreign Institutional Investor by Foreign Entity
Steps for registration with SEBI
Approving Authority: Securities and Exchange Board of India (SEBI)
Application to SEBI in Form A:
Foreign entity proposed to invest in India as FII, has to make an application to the SEBI in Form A, along with required documents and requisite fee.
On receipt of application, SEBI may ask for some additional information or documents from the applicant, before granting registration certificate. The applicant or is authorised representative may also be required to make personal representation before SEBI.
Criteria for grant of registration certificate:
There are few points of considerations by SEBI, before it may grant certificate of registration to the applicant. Some of these are as mentioned below:
- the applicant’s track record, professional competence, financial soundness, experience, general reputation of fairness and integrity;
- whether the applicant is registered and regulated by an appropriate foreign regulatory authority;
- Whether the grant of certificate to the applicant is in the interest of the development of the securities market; etc
Procedure for grant of certificate:
SEBI, after being satisfied with the information and documents furnished by the applicant, will grant certificate of registration in Form B, within 3 (three) months from the date when the required information/ documents is furnished to SEBI.
Post registration compliances
FIIs must comply and at all times after registration with SEBI, to the guidelines, rules and regulations as prescribed by SEBI and the Reserve Bank of India (RBI) in this regard.
FIIs are not allowed to invest in any company which is engaged or proposes to engage in the following activities:
- Business of chit fund, or
- Nidhi company, or
- Agricultural or plantation activities, or
- Real estate business* or construction of farm houses, or
- Trading in transferable development rights (TDRs).
* Real estate business does not include construction of housing/commercial premises, educational institutions, recreational facilities, city and regional level infrastructure, townships.