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NISM Certifications · NISM-Series-VI: Depository Operations

Foreign Portfolio Investors (FPI) for NISM Depository Operations

A Foreign Portfolio Investor (FPI) is a non-resident investor registered under the SEBI (Foreign Portfolio Investors) Regulations, 2019 to invest in Indian securities. Registration is granted through a Designated Depository Participant (DDP). To solve questions, learn the categories, registration route, holding limits, custodian and demat rules, ODI conditions and compliance duties.

What this chapter covers

This chapter explains how foreign investors enter Indian securities markets through the FPI route. It covers who can register, who grants registration, what they can buy, how much they can hold, and how their holdings are kept and settled.

For a depository paper, the operational side matters most. FPIs must appoint a custodian and hold securities in dematerialised form in a demat account with a depository participant. So this chapter links to your earlier study of depositories, demat accounts, DPs, account opening and settlement.

The chapter also connects to the later parts of the paper on surveillance, KYC and investor protection. Questions are usually factual: who does what, which category fits which investor, and what the limit or condition is.

Questions from this chapter are direct recall of rules, roles and limits, so they are easy marks if you know the exact terms. NISM-Series-VI has negative marking of 25% of the marks assigned to a question, and the pass mark is 60%. Mixing up the DDP with the custodian, or one limit with another, costs you marks. A clean chapter gives you accuracy you can bank.

Foreign Portfolio Investors (FPI): topics in the order to study them

  1. 1FPI Regulatory Framework and SEBI FPI RegulationsStart here, because every later rule comes from the SEBI (Foreign Portfolio Investors) Regulations, 2019 and its definitions.
  2. 2FPI Categories and Eligibility CriteriaYou need to know who qualifies and which category they fall in before you study registration.
  3. 3FPI Registration Process and Role of DDPRegistration builds on eligibility, and the DDP's role is a favourite exam point.
  4. 4Investment Conditions and Limits for FPIsOnce registered, you study what an FPI may buy and the holding limits that apply.
  5. 5Operational Aspects: Demat, Custodians and SettlementThis ties the chapter to depository work: accounts, custodians and how trades settle.
  6. 6Offshore Derivative Instruments and Participatory NotesODIs are a separate route with their own conditions, easier to learn after the core FPI rules.
  7. 7Compliance, Monitoring and Taxation of FPIsFinish with ongoing duties and tax, which round off the FPI life cycle.

How to prepare Foreign Portfolio Investors (FPI)

Treat this chapter as a set of roles, categories and limits. Learn each one as a clear fact and then practise telling similar options apart.

  1. Read the regulatory framework first and note the full name of the regulations and the regulator.
  2. Build a one-page table in your notes: Category I and Category II, with examples of investors in each.
  3. Write the registration flow in order: investor applies, DDP examines, registration is granted, then the investor appoints a custodian and opens a demat account.
  4. List every limit and condition in one place, including the single-FPI holding threshold and what happens when it is crossed. Check each figure against your NISM workbook.
  5. Make a short note on ODIs: who may issue them, who may subscribe and what reporting applies.
  6. Solve MCQs on this chapter and review each wrong answer to see which similar term fooled you.
  7. Revise the list of roles (SEBI, DDP, custodian, depository participant, depository) the day before the exam.

Common mistakes in Foreign Portfolio Investors (FPI)

  • Confusing the DDP with the custodian

    Fix: Remember that the DDP handles registration on behalf of SEBI, while the custodian holds and settles the FPI's securities.

  • Mixing up Category I and Category II investors

    Fix: Anchor on risk: Category I holds government-linked and similar low-risk entities. Category II is the wider group that does not fit Category I.

  • Stating the 10% limit loosely

    Fix: Learn the full wording, including what happens when the threshold is crossed.

  • Treating ODIs as a way around FPI rules

    Fix: Remember that ODIs are issued by registered FPIs, only to regulated and KYC-compliant subscribers, and are reported to SEBI.

  • Ignoring the demat requirement

    Fix: Link every FPI holding to a demat account with a DP and a custodian.

  • Guessing on unfamiliar limit questions

    Fix: Eliminate options that break a rule you know, and skip a question when you cannot narrow it to two.

Last-day revision: Foreign Portfolio Investors (FPI)

  • 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.

Foreign Portfolio Investors (FPI) practice questions

Foreign Portfolio Investors (FPI) in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Foreign Portfolio Investors (FPI): frequently asked questions

What is an FPI in the NISM Depository Operations exam?

An FPI is a non-resident investor registered with SEBI under the SEBI (Foreign Portfolio Investors) Regulations, 2019 to invest in Indian securities. The exam tests the categories, registration route, limits and operations.

What does a DDP do for an FPI?

A Designated Depository Participant receives and examines the FPI's application and grants registration on behalf of SEBI. It is different from the custodian, which holds and settles the FPI's securities.

Is holding FPI shares in physical form allowed?

No. FPIs must hold securities in dematerialised form in a demat account with a depository participant, and they need a custodian for their Indian investments.

How should I prepare the limits in this chapter?

Write each limit with its full condition, such as who it applies to and what happens on breach. Then check the figures against your latest NISM workbook, since rules can be revised.