Foreign Institutional Investor or FIIis a company incorporated or registered overseas but interested in investing in the Indian securities market. This article explains FIIin detail and where they can invest in India, along with an example.
One of the best ways to grow your wealth is through the share trading market, where you can find a wide variety of investment options. The investment instruments you choose should be based on several factors such as your objectives, risk appetites, and the financial goals you intend to achieve. What’s more, you can invest in Indian as well as foreign investment markets. Likewise, people living abroad can also invest in India. This article explains foreign institutional investors or FII.
What is FII?
An FII is typically an investor, an investment fund, or an asset that invests in a foreign country outside of the one where it is headquartered or registered. In India, FII is used for overseas entities that invest in the Indian financial markets. FIIs play a significant role in any economy. They are typically big companies and organisations such as banks, mutual fund houses, and other such entities that invest massive sums of money in the Indian investment market. The presence of FIIs in a stock market, and the securities they purchase, help the markets move upward. As such, they can strongly influence the total cash inflow coming into an economy.
Where can foreign institutional investors invest in India?
Here’s a list of investment opportunities that FIIs can explore if they wish to invest in India.
1. Primary and secondary market securities such as shares, debentures or company warrants.
2. Units of schemes that are floated by domestic fund houses, for instance, the Unit Trust of India. FIIs can invests in unit schemes whether or not they are listed on recognised stock exchanges.
3. Units of schemes that are floated by collective investment schemes
4. Derivatives that are traded on recognised stock exchanges
5. Dated Government Securities and Commercial papers of Indian establishments, corporations, organisations or firms
6. Credit enhanced bonds that are rupee dominated
7. Indian depository receipts and security receipts
8. Listed as well as unlisted non-convertible bonds or debentures issued by Indian companies belonging to the infrastructure sector. Here ‘infrastructure’ represents the terms of the External Commercial Borrowings or ECB guidelines.
9. Non-convertible bonds or debentures, which are issued by companies belonging to the NBFC (Non-Banking Financial Companies) sector. The Reserve Bank of India categorises these companies as Infrastructure Finance Companies or IFCs.
10. Rupee dominated bonds which are issued by the infrastructure debt funds
FII example
Let’s say a mutual fund house based in the United Kingdom sees an investment opportunity in a company listed on the Indian Stock Exchange. The UK-based company can take a long position in that company. This arrangement also benefits private investors in the UK, who may otherwise not be able to invest in Indian stocks. They can, instead, invest in the mutual fund and participate in the same company’s growth potential.
As is apparent, there are several opportunities for foreign institutional investorsto invest in India. The Securities Exchange Board in India, or SEBI, which is India’s primary market regulator, has over 1450 FIIsregistered on the various exchanges in India. FIIsserve as both, catalysts and triggers for market performance as they encourage investments from all types of investors, which in turn enables the financial market trends to grow under an organised system. For more information on FIIs, consult an Angel One investment advisor.
List of FII Investments in India
The top FII contributors in India are the following:
- Government of Singapore: The Government of Singapore has been one of the Top FII investors in India for the last couple of years. The total investment amount by the Government of Singapore stood at ₹1,21,000 crore.
- Europacific Growth Fund: The Europacific Growth Fund has invested over ₹29,350 crore in India through FII.
- Government Pension Global Fund: The Norway-based FII investor has made a total of ₹51,800 investments in over 65 Indian companies.
Besides the top three, other significant FII investors include names like Oppenheimer Developing Markets Fund, Vanguard Fund, Nalanda India Fund Limited, Elara India Opportunities Fund Limited, Amansa Holdings Private Limited, Smallcap World Fund Inc., and East Bridge Capital Master Fund Limited.
FAQs
An FII is an institutional entity, often from a foreign country, that invests in a host country’s financial markets, including stocks, bonds, and other financial instruments.
FII investment in India has gone up to $10 billion as of June 30, 2023. After a selling spree for the last 2 years, FII investors have shown interest in acquiring equities in the Indian market. Due to the surge in the FII Nifty, it crossed 18,900 points during the month.
FIIs typically invest by purchasing stocks, bonds, derivatives, and other financial assets listed on the host country’s stock exchanges or financial markets.
FIIs must comply with the regulatory framework of the host country, which often involves registration with local regulatory authorities and adherence to specific investment guidelines and reporting requirements.
FIIs can significantly influence market dynamics, liquidity, and asset prices due to their substantial investments. Changes in FII sentiment or investment flows can impact market volatility.
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Foreign Institutional Investor (FII):
An FII is an entity, often a large corporation or organization, incorporated or registered overseas, that invests in the financial markets of a foreign country, in this case, India. FIIs in India include major players like banks, mutual fund houses, and other entities that inject significant capital into the Indian investment market.
Where FIIs Can Invest in India:
- Primary and Secondary Market Securities: FIIs can invest in shares, debentures, or company warrants.
- Units of Schemes: Including those floated by domestic fund houses.
- Derivatives: Traded on recognized stock exchanges.
- Government Securities and Commercial Papers: Issued by Indian establishments.
- Credit Enhanced Bonds: Denominated in rupees.
- Indian Depository Receipts (IDRs) and Security Receipts: Tradable instruments.
- Non-Convertible Bonds or Debentures: Listed or unlisted, issued by Indian companies in the infrastructure sector.
- Rupee-Denominated Bonds: Issued by infrastructure debt funds.
FII Example:
Consider a mutual fund based in the United Kingdom spotting an investment opportunity in an Indian stock. The UK-based company takes a long position in the Indian company, allowing private investors in the UK to indirectly invest in Indian stocks through the mutual fund.
List of FII Investments in India:
- Government of Singapore: Invested ₹1,21,000 crore.
- Europacific Growth Fund: Invested over ₹29,350 crore.
- Government Pension Global Fund: Invested ₹51,800 crore in 65 Indian companies.
Other significant FII investors include Oppenheimer Developing Markets Fund, Vanguard Fund, Nalanda India Fund Limited, Elara India Opportunities Fund Limited, Amansa Holdings Private Limited, Smallcap World Fund Inc., and East Bridge Capital Master Fund Limited.
FAQs:
-
What is FII?
An institutional entity, often foreign, investing in a host country's financial markets. -
FII Volume in India (2023):
FII investment in India reached $10 billion as of June 30, 2023, marking a renewed interest after a two-year selling spree. -
How do FIIs invest in host countries?
FIIs invest by purchasing stocks, bonds, derivatives, and other financial assets listed on the host country’s stock exchanges. -
Regulatory Requirements for FIIs:
FIIs must comply with the regulatory framework of the host country, involving registration, adherence to specific investment guidelines, and reporting requirements. -
Impact of FIIs on Host Country's Financial Markets:
FIIs significantly influence market dynamics, liquidity, and asset prices, impacting market volatility with changes in sentiment or investment flows.
In summary, foreign institutional investors play a pivotal role in shaping India's financial landscape, and understanding their functions and impact is crucial for investors and market participants alike.
