Foreign Portfolio Investment (FPI) is a regulatory concept and a type of passive investment where foreign entities invest capital in a country's financial assets, such as stocks, bonds, and other securities, without gaining control of the companies. This contrasts with Foreign Direct Investment (FDI), which involves acquiring a controlling stake and a long-term interest in a business. India opened up to FPI in 1992 as a major source of private capital inflows, solving the problem of insufficient domestic capital for market growth and improving market liquidity.
The mechanism is governed primarily by the Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI), with the RBI overseeing foreign exchange aspects under the Foreign Exchange Management Act, 1999 (FEMA). FPIs must register with SEBI through Designated Depository Participants. A key provision is the investment limit: an FPI, along with its investor group, may hold up to 10% of a listed company's paid-up equity capital. Exceeding this 10% threshold triggers a mandatory re-classification of the excess investment as FDI under FEMA. FPIs are classified into two categories: Category I FPIs (low-risk, highly regulated entities like sovereign funds) and Category II FPIs (other regulated financial institutions and corporate bodies).
The regulatory framework underwent a significant change when the SEBI (Foreign Portfolio Investors) Regulations, 2019, were notified on September 23, 2019, which repealed the earlier SEBI (Foreign Portfolio Investors) Regulations, 2014. The 2019 regulations aimed to ease the registration process and lessen compliance requirements, for instance, by doing away with the "broad-based" eligibility criteria for institutional FPIs. More recently, in 2025, SEBI introduced targeted relaxations for FPIs investing exclusively in Government Securities, exempting them from certain eligibility and beneficial ownership disclosure requirements under the Foreign Portfolio Investors (Amendment) Regulations, 2025. Additionally, SEBI has allowed FPIs to settle outright cash market transactions on a net basis to enhance operational efficiency, a measure expected to become applicable towards the end of 2026.