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

An FPI holds 9.8% of a listed company's fully diluted equity and buys more shares, taking its holding to 11.5%. What is the correct treatment under the FPI Regulations?

On breaching the below-10% single-FPI limit, the FPI must within five trading days either sell off the excess or reclassify it as FDI, subject to FDI policy conditions. It cannot indefinitely keep the excess as portfolio investment.

  1. AThe FPI must divest the excess holding within five trading days or reclassify it as FDICorrect
  2. BThe excess is automatically treated as FDI and nothing else is needed
  3. CThe FPI may keep the excess indefinitely as portfolio investment
  4. DThe depository freezes the entire holding permanently

Explanation

When an FPI breaches the single-FPI limit, it has five trading days from the settlement of the trade to either divest the excess or, subject to the FDI policy and conditions, reclassify the excess as FDI. It cannot simply retain the excess as portfolio investment, and the whole holding is not frozen permanently.

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