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A foreign institutional investor (FII) is a person or a group of people operating or registered in a country that’s not their domicile.  Foreign institutional investor groups often operate as hedge funds, pension funds, insurance companies, and mutual funds.

FIIs are mostly associated with India, which has had, until recently, very restrictive laws on foreign investment. FIIs in India are still regulated by India’s Securities and Exchange Board (which is similar to the Securities and Exchange Commission in the United States).  Foreign investment in India by FIIs has played a substantial part in India’s economic growth.  This was true even under India’s restrictive foreign investment laws.  Until recently, FII’s were limited as how much equity they could purchase in a domestic Indian company.  The interest was always less than 50%.

But recently, India has changed its foreign investor laws to allow FIIs to own up to 100% of Indian companies in certain industries.  This change, made in 2014, brings India into conformance with other countries foreign investment policies.  Because of the change, India expects FIIs to make investments in India that will help its economy double in size in 2015.

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