Loading the player...

What is a 'Foreign Institutional Investor - FII'

A foreign institutional investor (FII) is an investor or investment fund registered in a country outside of the one in which it is investing. Institutional investors most notably include hedge funds, insurance companies, pension funds and mutual funds. The term is used most commonly in India and refers to outside companies investing in the financial markets of India.

BREAKING DOWN 'Foreign Institutional Investor - FII'

An FII is any type of large investor who does business in a country other than the one in which the investment instrument is being purchased. In addition to the types of investors above, others include banks, large corporate buyers or representatives of large institutions. All FIIs take a position in a foreign financial market on behalf of the home country in which they are registered.

FII in India

Countries with the highest volume of foreign institutional investments are those that have developing economies. These types of economies provide investors with higher growth potential than in mature economies. This is why these investors are most commonly found in India, all of which must register with the Securities and Exchange Board of India to participate in the market.

If, for example, a mutual fund in the United States sees an investment opportunity in an Indian-based company, it can purchase the equity on the Indian public exchange and take a long position in a high-growth stock. This also benefits domestic private investors who may not be able to register with the Securities and Exchange Board of India. Instead, they can invest in the mutual fund and take part in the high growth potential.

Regulations for Investing in Indian Companies

All FIIs are allowed to invest in India's primary and secondary capital markets only through the country's portfolio investment scheme (PIS). This scheme allows FIIs to purchase shares and debentures of Indian companies on the normal public exchanges in India.

However, there are many regulations included in the scheme. There is a ceiling for all FIIs that states the max investment amount can only be 24% of the paid-up capital of the Indian company receiving the investment. The max investment can be increased above 24% through board approval and the passing of a special resolution. The ceiling is reduced to 20% of the paid-up capital for investments in public sector banks.

The Reserve Bank of India monitors daily compliance with these ceilings for all foreign institutional investments. It checks compliance by implementing cutoff points 2% below the max investment amounts. This gives it a chance to caution the Indian company receiving the investment before allowing the final 2% to be invested.

RELATED TERMS
  1. India ETF

    An exchange-traded fund that is based on a basket of securities ...
  2. Participatory Notes

    Financial instruments used by investors or hedge funds that are ...
  3. Foreign Fund

    A mutual fund, closed-end fund or exchange-traded fund that invests ...
  4. Investment Company

    A corporation or trust engaged in the business of investing the ...
  5. International Fund

    A mutual fund that can invest in companies located anywhere outside ...
  6. Foreign Investment

    Flows of capital from one nation to another in exchange for significant ...
Related Articles
  1. Investing

    What is a Foreign Institutional Investor?

    A foreign institutional investor (FII) is a person or a group of people operating or registered in a country that’s not their domicile.
  2. Investing

    An Introduction To The Indian Stock Market

    Emerging markets like India are fast becoming engines for future growth. Find out how to get in on the ground floor.
  3. Investing

    An Introduction To The Indian Stock Market

    Most trading in the Indian stock market occurs through its two exchanges – the Bombay Stock Exchange and the National Stock Exchange.
  4. Investing

    Bombay Stock Exchange CEO Ashish Chauhan on India Rising

    India's largest stock exchange is hitting its stride. We talk with CEO Ashish Chauhan in New York.
  5. Investing

    Top 3 ETFs for Investing in India

    Find out which exchange-traded funds are poised to perform the best with the continued rise of the Indian economy as a major emerging market.
  6. Investing

    Introduction To Institutional Investing

    Investopedia explains: Learn about institutional investing and all of the major players in this field.
  7. Small Business

    The Funds Keep Flowing Into Indian Tech Startups

    Investors are increasingly turning their attention to Indian tech startup companies. Billions of dollars are flowing into the startup sector in India.
  8. Investing

    The Indian Story, Rebooted

    Once a BRIC, then one of the “Fragile Five," is India regaining its luster? We discuss the case for India.
  9. Retirement

    Can You Retire in India with $200,000 in Savings?

    India's cost-of-living ranks among the lowest in the world, but retiring there presents some challenges unrelated to finances.
  10. Insights

    India Is Eclipsing China's Economy As Brightest BRIC Star

    It seems fitting that on the occasion of Diwali – the Hindu “festival of lights” – India should emerge as the brightest star in the BRIC firmament.
RELATED FAQS
  1. What risks does a Foreign Institutional Investor (FII) face?

    Read about the types of risks that a foreign institutional investor faces when trading in Indian stock exchanges and dealing ... Read Answer >>
  2. What are some examples of a Foreign Institutional Investor (FII)?

    Discover some examples of foreign institutional investors, and learn information about the nature of foreign institutional ... Read Answer >>
  3. How does a Foreign Institutional Investor (FII) manage currency risk when investing ...

    Find out how foreign institutional investors protect themselves against inflation and currency risks when investing in international ... Read Answer >>
  4. How do mutual funds work in India?

    Find out how mutual funds work in India, including what types of funds are available, how they are structured and how they ... Read Answer >>
  5. How can an individual investor get involved in FDIs (foreign direct investments) ...

    Understand what the term foreign direct investment (FDI) means, and learn how individual investors can get involved in FDI ... Read Answer >>
  6. Do hedge funds invest in mutual funds?

    Learn whether hedge funds invest in mutual funds. They are permitted to invest in mutual funds but usually avoid doing so ... Read Answer >>
Hot Definitions
  1. Cash Flow

    The net amount of cash and cash-equivalents moving into and out of a business. Positive cash flow indicates that a company's ...
  2. PLUS Loan

    A low-cost student loan offered to parents of students currently enrolled in post-secondary education. With a PLUS Loan, ...
  3. Graduate Record Examination - GRE

    A standardized exam used to measure one's aptitude for abstract thinking in the areas of analytical writing, mathematics ...
  4. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
  5. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
  6. Cover Letter

    A written document submitted with a job application explaining the applicant's credentials and interest in the open position. ...
Trading Center