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

Investment Conditions and Limits for FPIs in India

Updated 11 October 2026 · Fact-checked

A single FPI, together with its investor group, must hold below 10% of a company's fully diluted paid-up equity, or of each series of debentures, preference shares or warrants. All FPIs together are capped by the company's sectoral cap. Debt limits are set by RBI and SEBI. A breach must be fixed within 5 trading days.

Understand Investment Conditions and Limits for FPIs

Foreign Portfolio Investors (FPIs) invest in Indian securities for returns, not to control companies. The rules separate this portfolio investment from foreign direct investment (FDI). The main tool is a cap on how much an FPI can hold in one company.

The key condition is the single-FPI limit. One FPI, taken together with its investor group, must hold below 10% of the total paid-up equity capital of an Indian company on a fully diluted basis. For debentures, preference shares and share warrants, the same 10% applies to the paid-up value of each series. The word is *below*: exactly 10% is already a breach.

An investor group is a set of FPIs treated as one for limit purposes. FPIs are in one group when they have common ownership of more than 50% or common control. Their holdings are added together and tested against the single 10% limit. Splitting money across several related FPIs does not get around the cap.

There is also an aggregate limit for all FPIs in a company. It cannot exceed the sectoral cap the Government sets for that sector under foreign exchange rules. Total foreign investment in the company, including FDI, must stay within it. Debt investment follows separate limits that RBI and SEBI set for the debt market. They are usually stated as a share of outstanding stock, and they can change.

If an FPI crosses 10%, it has a short window to put it right. It can sell the excess or reclassify the holding as FDI, subject to the conditions for FDI. If it does neither, the whole holding is treated as FDI. Depositories and custodians help monitor these limits, which is why this topic appears in a depository exam.

Key formulas to remember

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.

How to solve Investment Conditions and Limits for FPIs questions

Most questions on this topic test one rule or one calculation. Use the same checks each time.

  1. 1Identify the security: equity, or debentures, preference shares and warrants, or debt. This decides which limit applies.
  2. 2Identify who is being tested: one FPI, an investor group, or all FPIs together. Single and group limits use 10%. All FPIs together use the sectoral cap.
  3. 3If several FPIs appear, check for common ownership of more than 50% or common control. If yes, add their holdings.
  4. 4Use the right base. Equity: total paid-up capital on a fully diluted basis. Other securities: paid-up value of that series.
  5. 5Compare the total with 10%. Remember it must be strictly below 10%.
  6. 6If there is a breach, apply the remedy: divest or reclassify as FDI within 5 trading days of settlement of the trades causing the breach.
  7. 7For aggregate limit questions, compare total foreign holding with the sectoral cap, not with 10%.
  8. 8Eliminate options that use wrong numbers, wrong timelines or confuse FPI with FDI.

Quickest way: The 10 / group / cap / 5-day check

When to use it: Use this for any MCQ on FPI limits when time is short.

  1. Single FPI or group: the answer is below 10%.
  2. Group means more than 50% common ownership or common control. Add up the holdings.
  3. All FPIs together: the sectoral cap.
  4. Breach: 5 trading days to divest or reclassify as FDI.
  5. Debt limits: set by RBI and SEBI, not by the company or the depository.

Common mistakes in Investment Conditions and Limits for FPIs

  • Treating exactly 10% as allowed

    Students read the rule as a 10% ceiling.

    Fix: The condition is below 10%. A holding of exactly 10% breaches it.

  • Testing each FPI in a group separately

    Each FPI looks small on its own, so the total is never added.

    Fix: Check for common ownership of more than 50% or common control. If found, add the holdings and test the total.

  • Mixing up the 10% limit with the aggregate limit

    Both are called FPI limits.

    Fix: 10% applies to one FPI or investor group. The aggregate limit applies to all FPIs together and is linked to the sectoral cap.

  • Using the wrong base for non-equity securities

    Students apply total equity capital to every security.

    Fix: For debentures, preference shares and warrants, the base is the paid-up value of each series.

  • Giving the wrong breach timeline or consequence

    Students confuse it with other settlement timelines.

    Fix: The window is 5 trading days from settlement of the trades causing the breach. If not corrected, the whole holding is treated as FDI.

  • Memorising fixed debt limit figures

    Debt limits are revised from time to time, so old figures mislead.

    Fix: Remember that RBI and SEBI set debt limits and review them. Answer on the principle, not on a number.

Worked examples

Example 1

An Indian company has fully diluted paid-up equity capital of 100 crore shares. Three FPIs, A, B and C, are commonly controlled. They hold 4 crore, 3.5 crore and 3 crore shares. Is the single-FPI limit breached, and what is the combined holding?
A) 9.5%, no breach
B) 10.5%, breach
C) 4%, no breach
D) 3.5%, no breach

Show the solution
  1. The FPIs are under common control, so they form one investor group.
  2. Add the holdings: 4 + 3.5 + 3 = 10.5 crore shares.
  3. Divide by the base: 10.5 ÷ 100 = 10.5%.
  4. The limit is below 10%. 10.5% is not below 10%, so there is a breach.
  5. Options C and D test the FPIs one by one, which is wrong. Option A is a wrong total.

Answer: B) 10.5%, breach

Example 2

An FPI's purchases settle on Monday and take its holding in a company above 10% of fully diluted equity. It does not reclassify the holding. What must it do and by when, and what happens if it does not?
A) Sell the excess within 5 trading days of settlement; otherwise the whole holding is treated as FDI
B) Sell the excess within 30 days; otherwise only the excess is cancelled
C) Report to the company within 1 day; no further action needed
D) Sell the excess at the end of the financial year; otherwise a fine is paid

Show the solution
  1. The breach comes from trades that have settled, so the clock runs from settlement.
  2. The remedy is to divest the excess or reclassify as FDI within 5 trading days.
  3. The question says no reclassification, so the FPI must divest.
  4. If neither is done, the whole holding, not just the excess, is treated as FDI.
  5. Options B, C and D give invented timelines or consequences.

Answer: A) Sell the excess within 5 trading days of settlement; otherwise the whole holding is treated as FDI

Exam tips

  • Look for the words *below 10%*, *fully diluted*, *investor group* and *5 trading days*. These carry most of the marks on this topic.
  • In calculation questions, check first whether the FPIs are one group. Questions often hide this in a line about common control.
  • Do not pick an option with a specific debt limit figure unless the question gives it. Prefer options that name RBI and SEBI as the setters.
  • NISM-Series-VI has negative marking of 25% of the marks for a question, so skip a question rather than guess if you cannot rule out two options.

Practice questions from Foreign Portfolio Investors (FPI)

Investment Conditions and Limits for FPIs in other exams

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

Investment Conditions and Limits for FPIs: frequently asked questions

What is the FPI investment limit in an Indian company?

A single FPI, together with its investor group, must hold below 10% of the company's total paid-up equity on a fully diluted basis. For debentures, preference shares and warrants, the 10% is on the paid-up value of each series. All FPIs together are limited by the sectoral cap.

What happens if an FPI breaches the 10% limit?

The FPI must divest the excess or reclassify the holding as FDI within 5 trading days of settlement of the trades that caused the breach. Reclassification must meet FDI conditions. If neither is done, the entire holding is treated as FDI.

What is an investor group for FPI limits?

It is a set of FPIs with common ownership of more than 50% or common control. Their holdings are added together and tested against one 10% limit.

How are FPI debt investment limits decided?

RBI and SEBI set them for the debt market, usually as a share of outstanding stock, and revise them from time to time. For the exam, know who sets them rather than a particular figure.