In September 1992, the Government of India announced the opening up of the country's stock markets to direct participation by FIIs, such as Pension Funds, Mutual Funds, Investment Trusts, Asset Management Companies, Nominee Companies and incorporated/institutional Portfolio Managers or their power-of-attorney holders (providing discretionary and non-discretionary portfolio management services). These are welcome to invest in all the securities traded on the primary and secondary markets, including the equity and other securities/instruments of companies which are listed/to be listed on the Stock Exchanges in India, (including the OTC Exchange of India). These would include shares, debentures, warrants and schemes floated by domestic mutual funds.
To undertake these activities FIIs are required to obtain an initial registration with Securities and Exchange Board of India (SEBI), the nodal regulatory agency for securities markets.
In addition, FIIs need to comply with certain foreign exchange regulations for which they need to file an application with SEBI addressed to RBI. RBI's general permission would be obtained by SEBI before granting initial registration, under the single window approach.
SEBI's initial registration is valid for five years. RBI's general permission under FERA to the FII will also hold for five years. Both are renewable for similar five year periods. RBI's general permission granted under FERA enables the registered FII to buy, sell and realize capital gains on investments made through the initial corpus remitted to India, subscribe/renounce rights offerings of shares, invest on all recognized stock exchanges through a designated bank branch, and appoint a custodian for custody of investments held.
There is no restriction on the volume of investment - minimum or maximum - for the purpose of entry of FIIs, in the primary/secondary market. However, total holdings by FIIs, OCBs and NRIs in a company must not exceed 24% after the allotment, and the total holdings of a single FII or FIIs of the same group are subject to a ceiling of 5%.
Disinvestment is allowed through stock exchanges in India, including the OTC Exchange. In exceptional cases, SEBI can permit sales other than through stock exchanges, provided the sale price is not significantly different from the stock market quotations, where available.
Several mutual and pension funds are also looking at the Indian market. In addition, a number of offshore Indian funds have been instituted by investment agencies abroad and are listed on international stock exchanges. Indian companies are also raising capital on the Euro markets through the issue of equity and debt.