NISM-Series-VI: Depository Operations · Foreign Portfolio Investors (FPI)

FPI Categories and Eligibility Criteria Explained

Updated 11 October 2026 · Fact-checked

Under the SEBI (Foreign Portfolio Investors) Regulations, 2019, which replaced the 2014 Regulations, FPIs fall into Category I and Category II. Category I covers government and government-related investors, pension and university funds, and appropriately regulated entities such as banks, insurers and mutual funds. Category II is the residual class. Eligibility needs fit-and-proper status, valid KYC and a permitted jurisdiction.

Understand FPI Categories and Eligibility Criteria

A Foreign Portfolio Investor (FPI) is a foreign investor registered with SEBI, through a Designated Depository Participant (DDP), to invest in Indian securities. FPIs buy and sell listed shares, debt and similar instruments. They do not take control of a company.

SEBI groups FPIs by risk. The idea is simple. The lower the risk of misuse (money laundering, terror financing, round-tripping), the lighter the due diligence. Higher-risk applicants face stricter checks.

The SEBI (FPI) Regulations, 2014 had three categories: I, II and III. The SEBI (FPI) Regulations, 2019 replaced the 2014 Regulations and reduced the categories to two. Category I now covers government and government-related investors, pension funds and university funds, and appropriately regulated entities such as banks, asset managers, insurers and appropriately regulated broad-based funds. Category II is the residual class and covers all other eligible FPIs. The entities of the old Category III were folded into Category II, so Category III no longer exists as a separate class.

In broad terms, Category I includes government and government-related investors (such as central banks, sovereign wealth funds, and international or multilateral organisations or agencies), pension funds, university funds, and appropriately regulated entities such as appropriately regulated broad-based funds (for example mutual funds and investment trusts), insurance or reinsurance entities, banks, asset management companies, investment managers, investment advisors, portfolio managers, broker-dealers and swap dealers. Category II includes everything else, such as unregulated broad-based funds whose investment manager is regulated, endowments, charitable organisations, corporate bodies, family offices and individuals.

To register, an applicant must meet eligibility conditions. These include: the applicant is not a resident in India; it is a resident of a country whose securities market regulator is a signatory to the IOSCO Multilateral MoU (Appendix A signatory) or a bilateral MoU with SEBI; and, if a bank, its central bank is a member of the Bank for International Settlements. The applicant must not be a resident of a jurisdiction identified by FATF as high-risk. It must be a fit and proper person and must give the required declarations and documents. KYC must be complete. Beneficial owners must be identified, and they are checked against prescribed thresholds.

Key formulas to remember

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.

How to solve FPI Categories and Eligibility Criteria questions

Use this method for any question on FPI categories or eligibility.

1Read the question and note what is asked: the category, an eligibility condition, or the difference between categories.
2Identify the type of investor in the question: government body, pension or university fund, appropriately regulated bank, asset manager, insurer or broad-based fund, or a private investor such as an individual, family office or corporate.
3Apply the Category I test. Government and government-related investors, pension funds, university funds and appropriately regulated entities such as banks, asset managers, portfolio managers, broker-dealers, swap dealers, insurers and regulated broad-based funds (for example mutual funds) point to Category I.
4Everything else is Category II. This includes unregulated broad-based funds whose investment manager is regulated, endowments, corporates, family offices and individuals.
5For eligibility questions, check the conditions: non-resident, regulated jurisdiction, fit and proper, KYC, FATF status.
6Watch for the word Category III. If the question asks about the current framework, Category III is not a separate class.
7Eliminate options that mention SEBI directly registering without a DDP or that name wrong conditions, then pick the best match.

Quickest way: Government, pension, university fund or regulated financial firm means Category I

When to use it: Use this when you must classify an investor in a single MCQ within seconds.

Ask: is the investor a government or government-related body, a pension fund, a university fund, or an appropriately regulated bank, asset manager, portfolio manager, broker-dealer, swap dealer, insurer or broad-based fund?
If yes, mark Category I.
If it is anything else, such as an unregulated broad-based fund, endowment, individual, family office or corporate, mark Category II.
If the option says Category III as current, reject it.
For eligibility, remember the five checks: non-resident, fit and proper, KYC, good jurisdiction, declarations.

Common mistakes in FPI Categories and Eligibility Criteria

Choosing Category III as a current FPI category.
Older books and notes describe three categories under the 2014 Regulations.
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.
Students assume any foreign investor with large funds is low risk.
Fix: Category I is about the type of investor, not size. Individuals, family offices and corporates are Category II.
Putting an appropriately regulated bank, asset manager, insurer or regulated broad-based fund (such as a mutual fund) in Category II.
Students think Category I is only for government-type bodies, pension funds and university funds.
Fix: Appropriately regulated entities such as banks, asset managers, investment managers, portfolio managers, broker-dealers, swap dealers, insurers and regulated broad-based funds such as mutual funds and investment trusts are Category I. Category II is the residual class, such as unregulated broad-based funds whose investment manager is regulated, endowments, corporates, family offices and individuals.
Thinking the investor applies directly to SEBI without a DDP.
The registration is granted by SEBI, so the route looks direct.
Fix: The application goes through a Designated Depository Participant, which processes it for SEBI.
Ignoring fit-and-proper and jurisdiction conditions.
Students focus only on the category names.
Fix: Remember that eligibility is separate from category. Every applicant must be fit and proper and from an acceptable jurisdiction.

Worked examples

Example 1

Which of the following is most likely to be classified as a Category I FPI?
A) A foreign individual investor
B) A sovereign wealth fund
C) A family office
D) A foreign corporate body

Show the solution

The question asks for Category I, which covers government and government-related investors, pension funds, university funds and appropriately regulated entities such as banks, asset managers, insurers and regulated broad-based funds.
A foreign individual is a private person, so Category II.
A sovereign wealth fund is a government-related entity, so it fits Category I.
A family office is private, so Category II.
A foreign corporate body is a private entity and falls in the residual class, so Category II.

Answer: B) A sovereign wealth fund

Example 2

Which statement about FPI categories under the current SEBI regulations is correct?
A) There are three categories, I, II and III
B) Category II covers eligible FPIs that are not in Category I
C) Category I covers only individuals
D) FPIs register by applying to the stock exchange

Show the solution

The 2019 Regulations replaced the 2014 Regulations and reduced the categories to two, so A is wrong.
Category II is the residual class for all eligible FPIs not in Category I, so B matches.
Category I is for government and government-related investors, pension funds, university funds and appropriately regulated entities, not individuals, so C is wrong.
Registration is through a DDP and granted by SEBI, not the stock exchange, so D is wrong.

Answer: B) Category II covers eligible FPIs that are not in Category I

Exam tips

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.
Individuals, family offices, corporates and endowments are a common trap. They are Category II, not Category I.
Learn the registration route by heart: applicant, DDP, SEBI.
Questions may ask about conditions like fit and proper and jurisdiction. Read each option against the full list of conditions.

Practice questions from Foreign Portfolio Investors (FPI)

FPI Categories and Eligibility Criteria: frequently asked questions

What is the difference between FPI Category I and Category II?

Category I covers government and government-related investors, pension funds, university funds and appropriately regulated entities such as banks, asset managers, portfolio managers, broker-dealers, swap dealers, insurers and regulated broad-based funds like mutual funds. Category II is the residual class, such as unregulated broad-based funds whose investment manager is regulated, endowments, corporates, family offices and individuals. Category I faces lighter due diligence than Category II.

Does FPI Category III still exist?

No. The SEBI (FPI) Regulations, 2019 replaced the 2014 Regulations and reduced the categories from three to two. Category III entities were folded into Category II, so Category III is only historical.

What are the basic FPI eligibility criteria under SEBI rules?

The applicant must be a non-resident and a fit and proper person. It must be from an acceptable jurisdiction and not from a high-risk FATF jurisdiction. It must complete KYC and give the required declarations and documents.

Who processes an FPI registration application?

The application is made through a Designated Depository Participant (DDP). SEBI grants the registration. The DDP handles the documents and checks on SEBI's behalf.