NISM Certifications · NISM-Series-VI: Depository Operations

Foreign Portfolio Investors (FPI): formula sheet

Full chapter guide

Key formulas

Current governing regulation: SEBI (Foreign Portfolio Investors) Regulations, 2019; Replaced the 2014 FPI Regulations. Do not confuse it with the old FII Regulations of 1995.
Evolution: FII + Sub-accounts + QFI → FPI; One common class of foreign portfolio investor under a single regime.
Regulator roles: SEBI = registration and supervision; RBI = foreign exchange (FEMA); Government = policy; Match the function to the authority in MCQs.
Registration channel: Application → DDP → registration on behalf of SEBI; The investor applies through a Designated Depository Participant.
FPI vs FDI: FPI = portfolio investment without control; FDI = lasting interest and control; Use this to reject options that treat the two as the same.
Number of categories now: Category I and Category II only (SEBI FPI Regulations, 2019); The 2019 Regulations replaced the 2014 Regulations. Category III of the 2014 Regulations was folded into Category II. Do not pick Category III as a current class.
Category I (broad): Government and government-related investors + pension funds and university funds + appropriately regulated entities such as banks, asset managers, insurers and regulated broad-based funds; Examples: central banks, sovereign wealth funds, multilateral agencies, pension funds, university funds, regulated banks, asset management companies, portfolio managers, broker-dealers, swap dealers, insurance and reinsurance entities, and appropriately regulated broad-based funds such as mutual funds and investment trusts.
Category II (residual): All eligible FPIs that are not Category I; Examples: unregulated broad-based funds whose investment manager is regulated, endowments, charitable organisations, corporate bodies, family offices, individuals.
Registration route: Application → Designated Depository Participant (DDP) → SEBI grants registration; The DDP (often a custodian or bank approved by SEBI) is the point of contact; it acts on SEBI's behalf.
Core eligibility: Non-resident + fit and proper + valid KYC + permitted jurisdiction + required declarations; Residents of high-risk FATF jurisdictions are not eligible.
Who registers an FPI: Applicant → DDP → registration granted on behalf of SEBI; The application goes to a DDP, not directly to SEBI. The DDP is a SEBI-approved custodian or depository participant.
Governing regulation: SEBI (Foreign Portfolio Investors) Regulations, 2019; This is the current set of rules. It replaced the 2014 regulations.
Registration validity: Registration is permanent, subject to payment of fees every block of three years; Under the 2019 regulations, registration continues unless it is suspended, cancelled or surrendered. Fees are paid for each block of three years. Failure to pay can lead to the registration ceasing.
Pre-trade requirements: Registration + PAN + KYC + custodian + demat account + bank account → trading; Registration alone does not allow trading.
DDP duties: Verify documents → check eligibility and KYC → grant registration → collect fees → support renewal and changes; Use this as a checklist when an option describes the DDP role.
Single FPI limit (equity): FPI holding + investor group holding < 10% of total paid-up equity (fully diluted); Strictly below 10%. Exactly 10% is a breach.
Single FPI limit (debentures, preference shares, warrants): Holding < 10% of the paid-up value of each series; Tested series by series, not on the combined total of all series.
Investor group test: Common ownership of more than 50% or common control = one investor group; Holdings of all FPIs in the group are added and tested against one 10% limit.
Aggregate limit: All FPIs together ≤ sectoral cap / statutory ceiling for the company; The cap is set by the Government for the sector. Foreign investment as a whole must stay within it.
Breach remedy: Divest excess or reclassify as FDI within 5 trading days of settlement of the trades causing the breach; If neither is done, the whole holding is treated as FDI.
Debt limits: Set by RBI and SEBI as a share of outstanding stock of the debt segment; Do not memorise figures. Know who sets them and that they can change.
Registration route: FPI → DDP → SEBI registration (via DDP) → certificate; The DDP is the entry point for registration. Do not say the FPI applies directly to the exchange.
Accounts an FPI needs: Demat account (with DP) + bank account (with Indian bank) + PAN; The demat account holds securities. The bank account handles money. Both are linked to the custodian's work.
Role split: Broker = executes trade; Custodian = typically confirms and settles, keeps securities and records; Depository = holds and transfers securities; Clearing corporation = guarantees and nets obligations; Most MCQs test who performs which task.
Settlement entry: Seller's demat account debited ↔ Buyer's demat account credited, with matching funds movement; Securities move only through the depository on a pay-in and pay-out basis.
Corporate benefits: Bonus, split, rights entitlements → demat account; cash dividend → bank account; Securities credit goes to demat. Cash credit goes to bank.
Meaning of ODI: ODI = instrument issued outside India by a registered FPI, with Indian securities as underlying; P-Notes are one type of ODI. The subscriber is not the registered investor in India.
Who issues: Issuer = Category I FPI, registered with SEBI, and permitted to issue ODIs; A Category II FPI is not an eligible ODI issuer. Check this option in MCQs.
Who subscribes: Subscriber = regulated entity that meets SEBI eligibility and KYC norms; The issuer must do due diligence and KYC on the subscriber. Do not assume anonymity.
Reporting: Issuer reports ODI details to SEBI at the prescribed periodic intervals; Learn that reporting is a duty of the issuer. Do not memorise frequency unless your workbook states it.
Transfer: Transfer of ODIs only to eligible persons, with prior consent or notice as prescribed; ODIs cannot be freely passed on to any person. Transfers are restricted.
Single FPI investment limit: Single FPI (with investor group) holding < 10% of a company's total paid-up equity capital; A holding of 10% or more is a breach. If breached, divest the excess within 5 trading days of settlement of the breaching trades. Alternatively, seek reclassification as FDI, which needs the company's consent and compliance with FDI conditions.
Aggregate FPI limit: All FPIs together ≤ sectoral or statutory cap for that company; Depositories monitor this using custodian data.
Who does what: DDP = registers and oversees the FPI; Custodian = holds securities and reports; Depository = monitors limits; SEBI = enforces and penalises; Exam questions often ask you to match the task to the right party.
Beneficial owner: BO = natural person who ultimately owns or controls the FPI; Look through companies, trusts and partnerships up to a natural person.
Registration validity: FPI registration is valid until suspended or cancelled by SEBI or surrendered by the FPI, subject to payment of the prescribed fees; There is no fixed renewal cycle to memorise, but SEBI can suspend or cancel the registration.
FPI tax provision: Section 115AD: special tax rates on FPI income from securities; Treaty relief is possible if conditions are met. Check current rates in your workbook.

Quick revision

FPIs are regulated by SEBI under the SEBI (Foreign Portfolio Investors) Regulations, 2019.
FPIs are registered in two categories: Category I and Category II.
Category I covers lower-risk investors such as government and government-related bodies and pension funds.
Category II covers eligible investors that are not in Category I.
Registration is granted through a Designated Depository Participant (DDP) acting on behalf of SEBI.
An FPI must appoint a custodian and hold securities in dematerialised form.
A single FPI together with its investor group must stay below 10% of the paid-up equity capital of an Indian company, on a fully diluted basis.
Crossing that 10% threshold means the investment is treated as FDI unless the holding is brought down or reclassified within the time the rules allow.
ODIs, including participatory notes, are issued by registered FPIs against Indian securities to overseas investors.
ODI subscribers must be regulated and meet KYC conditions, and ODI issuers report to SEBI.
Wrong answers are penalised at 25% of the marks assigned to the question, so avoid blind guesses.
Always confirm exact limits and timelines against the current NISM workbook.

Common mistakes

Saying FIIs still exist as a separate category under current rules. Fix: Remember that FII, sub-accounts and QFIs were merged into the single FPI category.
Choosing RBI as the registering authority for FPIs. Fix: Registration is under SEBI, through a DDP. RBI handles the FEMA side.
Choosing Category III as a current FPI category. Fix: Remember that the 2019 Regulations replaced the 2014 Regulations and have only Category I and Category II. Treat Category III as historical.
Placing individuals or family offices in Category I. Fix: Category I is about the type of investor, not size. Individuals, family offices and corporates are Category II.
Thinking the FPI applies directly to SEBI. Fix: Remember that SEBI has delegated this work to DDPs. The application goes to a DDP.
Believing registration must be renewed every year or every few years like a licence expiry. Fix: Under the 2019 regulations, registration is permanent. What recurs is the fee for each block of three years.
Treating exactly 10% as allowed Fix: The condition is below 10%. A holding of exactly 10% breaches it.
Testing each FPI in a group separately Fix: Check for common ownership of more than 50% or common control. If found, add the holdings and test the total.
Saying the FPI registers directly with the exchange. Fix: Remember that registration is granted by a DDP on behalf of SEBI, and the DDP issues the certificate. The exchange has no role in it.
Confusing the DDP with any DP. Fix: A DDP is a DP or custodian specially approved by SEBI to handle FPI registration. An ordinary DP only opens and maintains demat accounts.

Exam tips

Expect direct recall: name of the regulation, year, and which authority does what.
Watch for options that swap SEBI and RBI roles. This is the most common trap.
Remember the order: FII regime, then 2014 FPI Regulations, then 2019 Regulations as current.
Link FPI questions to depository operations: FPIs hold securities in demat form through custodians and DPs.
Read 'not' and 'except' carefully. NISM-Series-VI carries negative marking of 25% of the marks assigned to a question.
Expect direct classification questions: you get an investor type and must pick the category.
Look for trap options that use Category III. Under the current framework it is not a separate class.
Remember that Category I rests on the type of investor (government-related, pension fund, university fund, or an appropriately regulated entity such as a bank, asset manager or insurer), not on the size of the fund.