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

An FPI holds 9.6% of the paid-up equity of an Indian listed company and buys additional shares taking it to 10.4%. What is the regulatory consequence for the excess holding?

The FPI must sell the excess holding above the permitted limit within five trading days. If it does not, the whole holding is reclassified as foreign direct investment and must comply with FDI rules. Depositories do not cancel the shares, and the limit is not confined to one FPI category.

  1. AThe FPI must divest the excess holding within five trading days, failing which the entire holding is reclassified as FDICorrect
  2. BThe holding is automatically cancelled by the depository
  3. CNothing happens as the limit applies only to Category III FPIs
  4. DThe FPI has to pay a penalty and may retain all shares as portfolio investment

Explanation

When a single FPI breaches the below-10% limit, it has to divest the excess within five trading days; otherwise the entire holding is reclassified as FDI, subject to FDI norms. The depository does not cancel shares and the limit is not specific to a category.

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