Foreign Portfolio Investment (FPI) is a concept that refers to passive investments made by foreign entities in the financial assets of India, such as stocks, bonds, and mutual funds, without acquiring a controlling interest in a company. The concept was introduced in India in 1992, initially through Foreign Institutional Investors (FIIs), to solve the problem of needing foreign capital to boost the domestic stock market and build foreign exchange reserves. The regulatory framework was first formalized under the SEBI (Foreign Institutional Investors) Regulations, 1995.
FPI works through a mechanism where foreign investors must register with the Securities and Exchange Board of India (SEBI). The current framework is governed by the SEBI (Foreign Portfolio Investors) Regulations, 2019, which replaced the 2014 Regulations on September 23, 2019. A key provision is that a single FPI or its investor group can hold a maximum of 10% of the total paid-up equity capital on a fully diluted basis of a company. FPI is closely connected to the Foreign Exchange Management Act (FEMA), 1999, and the Income Tax Act, 1961, where FPI income is taxed under Section 115AD.
The 2019 Regulations streamlined the process by eliminating the 'broad-basing criteria' (which required at least 20 investors for a fund) and reduced the number of FPI categories. While the core concept of passive investment remains the same, SEBI amended the 2019 Regulations on March 15, 2023, to enhance transparency in ownership structure, requiring FPIs to report material changes within seven working days under Regulation 22(1). Additionally, in April 2026, SEBI introduced a framework allowing net settlement of funds for FPIs in the cash market to reduce transaction costs.