Foreign Institutional Investors (FIIs.) including institutions such as Pension Funds, Mutual Funds, Investment Trusts, Asset Management or their power of attorney holders (providing discretionary and non-discretionary portfolio management services) are invited to invest in all the securities traded on the Primary and Secondary markets, including the equity and other securities/instruments of companies which are listed/to be listed on the stock exchanges in India including the OTC Exchange of India. These would include shares, debentures, warrants, and the schemes floated by domestic Mutual Funds. To be eligible to do so, the FIIs would be required to obtain registration with Securities and Exchange Board of India (SEBI). FIIs are also required to file with SEBI another application addressed to RBI for seeking various permissions under FERA.

SEBI shall for granting registration to the FII, take into account the track record of the FII, its professional competence, financial soundness, experience and such other relevant criteria. FIIs seeking registration with SEBI should hold a registration from the Securities Commission, or the regulatory organisation for the stock market in its own country of domicile/incorporation.

SEBI's registration and RBI's general permission under FERA to an FII will be for five years renewable for similar five year periods later on. RBI's general permission under FERA would enable the registered FII to buy, sell and realise capital gains on investments made through initial corpus remitted to India, subscribe/renounce rights offerings of shares, invest on all recogised stock exchanges through a designated bank branch, and to appoint a domestic Custodian for custody of investments held.

The General Permission from RBI shall also enable the FII to:

1. Open foreign currency denominated account(s) in a designated bank. (These can even be more than one account in the same bank branch each designated in difference foreign currencies, if it is so required by FII for its operational purposes);

2. Open a special non-resident rupee account to which could be credited all receipts from the capital inflows, sale proceeds of shares, dividends and interests;

3. Transfer sums from the foreign currency accounts to the rupee account and vice-versa, at the market rates of exchange;

4. Make investments in the securities in India out of the balances in the rupee account;

5. Transfer repatriatable (after tax) proceeds from the rupee account to the foreign currency accounts);

6. Repatriate the capital, capital gains, dividends, incomes received by way of interest, etc. and any compensation received towards sale/renouncement of rights offerings of shares subject to the designated branch of a bank/the custodian being authorised to deduct withholding tax on capital gains and arranging to pay such tax and remitting the net proceeds at market rates of exchange;

7. Register FII's holdings without any further clearance under FERA.

There is no restriction on the volume of investment minimum or maximum for the purpose of entry of FIIs, in the primary/secondary market. Also, there is no lock in period for the purpose of such investments made by FIIs.

Portfolio investments in primary or secondary markets will be subject to a ceiling of 24% of issued share capital for the total holdings of all registered FIIs, in any one company. The ceiling would apply to all holdings taking into account the conversions out of the fully and partly convertible debentures issued by the company. The holding of a single FII in any company would also be subject to a ceiling of 5% of total issued capital. For this purpose, the holdings of a FII ground will be counted as holdings of a single FII.

The maximum holding of 24% for all non-resident portfolio investments, including those of the registered FIIs, will also include NRI corporate and non-corporate investments, but will not include the following: 

1. Foreign investments under financial collaborations (direct foreign investments), which are permitted upto 51% in all priority areas.

2. Investments by FIIs through the following alternative routes :

i) Offshore single/regional Funds;

ii) Global Depository Receipts;

iii) Euroconvertibles.

Disinvestment will be allowed only through stock exchanges in India, including the OTC Exchange. In exceptional cases, SEBI may permit sales other than through stock exchanges, provided the sale price is not significantly different from the stock market quotations, where available.

 All secondary market operations would be only through the recognised intermediaries on the Indian Stock Exchange, including OTC Exchange of India. A registered FII will not engage in any short selling in securities and to take delivery of purchased and give delivery of sold securities.

 A registered FII can appoint as Custodian an agency approved by SEBI to act as a custodian of securities and for confirmation of transactions in securities, settlement of purchase and sale, and for information reporting. Such custodian shall establish separate accounts for detailing on a daily basis the investment capital utilisation and securities held by each FII for which it is acting as custodian. The Custodian will report to the RBI and SEBI semi-annually as part of its disclosure and reporting guidelines.

The RBI shall make available to the designated bank branches a list of companies where no investment will be allowed on the basis of the upper prescribed ceiling of 24% having been reached under the portfolio investment scheme.

The RBI may at any time request by an order a registered FII to submit information regarding the records of utilisation of the inward remittances of investment capital and the statement of securities transactions. RBI and/or SEBI may also at any time conduct a direct inspection of the records and accounting books of a registered FII.