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

An FPI's holding in an Indian listed company has breached the 10% single-investor limit through a fresh purchase. Which course of action reflects the framework?

The FPI can either sell the excess holding within the prescribed time or reclassify it as foreign direct investment, subject to FDI conditions. The depository does not cancel the shares, and the breach cannot simply be ignored.

  1. AThe FPI may either divest the excess holding within the prescribed time or reclassify the excess as FDI, subject to conditionsCorrect
  2. BThe excess is automatically cancelled by the depository without notice
  3. CThe excess holding is retained and no action is needed
  4. DThe DP must freeze the whole demat account permanently

Explanation

On breach of the 10% limit, the FPI has the option to divest the excess within the stipulated period or to treat the excess holding as FDI subject to FDI conditions and reporting. The depository does not cancel shares automatically, and ignoring the breach is not allowed.

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