Foreign Institutional Investor or FII is a company incorporated or registered overseas but interested in investing in the Indian securities market. This article explains FII in 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 investors to invest in India. The Securities Exchange Board in India, or SEBI, which is India’s primary market regulator, has over 1450 FIIs registered on the various exchanges in India. FIIs serve 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
What is a Foreign Institutional Investor (FII)?
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.
What is the volume of FII in India in 2023?
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.
How do FIIs invest in a host country's financial markets?
FIIs typically invest by purchasing stocks, bonds, derivatives, and other financial assets listed on the host country’s stock exchanges or financial markets.
What are the regulatory requirements for FIIs in the host country?
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.
What is the impact of FIIs on a host country's financial markets?
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.
