Different types of FII

Podcast Duration: 06:01

Hi friends and welcome to this podcast by Angel Broking.

Doston aapne news mein foreign investment ke baare mein suna hai kya? Aksar aap sunenge ki SEBI ya fir Securities Exchange Board of India, foreign investment ke rules ko change kar rahi hai. Kya aapne kabhi ye socha ki foreign investment ko government regulate kyun karti hai? Do you know ki government kya guidelines issue karti hai, for regulating foreign direct investment?

Is podcast mein we will touch on all these topics, lekin more importantly, we will discuss about FII, ya fir Foreign Institutional Investors.

Doston foreign investment isliye regulate kiya jaata hai, kyunki it can be both good aur bad for the national economy. Agar government foreign investment ko regulations ke zariye restrict nahi karti hai, toh foreign entities jaise companies aur other business entities national economy par heavy control exert kar sakti hain. On the other hand, foreign investment se national economy ko benefit bhi hota hai. Do you know why?

Kyunki foreign investment ka matlab ye, ki companies ko national economy ke baahar se capital boost milta hai, jiska matlab simple hai - faster growth. Basically, to strike the right balance between these two extreme possibilities, countries foreign investment ko governmental bodies ke zariye regulate karti hain.

Doston India mein ye regulations issue karne wali bodi hai SEBI. SEBI ke according foreign investments do main categories mein classify hote hain - FDI, ya fir Foreign Direct Investment. Aur second, FII, ya fir Foreign Institutional Investors.

Doston ye point dhyaan se note kariye - Recently, government ne kuch changes introduce kiye hain, jiske tehat FII merge ho gaya hai FPI naam ki category mein. Iska full form hai Foreign Portfolio Investor. Toh previously in teen categories - namely - FIIs, sub-accounts aur Qualified foreign Investors mein jo pehle distinction tha, usko FPI category me mask kar diya gaya hai. Toh basically, FPI aur FII ab Indian securities ke context mein interchangeably bhi use hota hai.

Doston FPI aur FDI mein ek major difference hai. Agar koi institution kisi Indian company mein 10% se zyada invest karti hai, toh it is classified as foreign direct investment, or FDI. On the other hand, FPI mein foreign entities up to 10% hi invest kar sakti hain.

Are you clear on this friends?

Toh chaliye aage badhte hain.

Doston let’s talk about what FIIs actually are. FIIs ka full form hai Foreign Institutional Investors - matlab foreign institutions jo India mein invest kar rahi hain. For example, maan lijiye ki koi american bank kisi Indian Tech company mein invest kar rahi hai - toh wo bank foreign institutional investor kehlayega. Simple, right?

Doston, India mein kai tarah ke FIIs recognise kiye jaate hain. Ek baar iss list ka review kar lete hain.

These are -

Pension funds

Mutual Funds

Investment trusts

Banks

Sovereign Wealth Funds

Asset Management Company

Insurance/Reinsurance Companies

Foreign Central Banks

Foreign Government Agencies

Endowments

Foundations

University Funds

Charitable Trusts

Long list, wasn't it? Toh doston koi institution registered abroad jo recently discussed categories mein fall hoti hai, woh jab indian securities mein invest karti hai, toh they are basically FIIs.

And while we look at these examples, don’t forget the 10% distinction between FDI and FPI my friends.

Toh kaise karti hain ye foreign entities India mein invest?

Chaliye jaante hain.

Doston in the past few years, government ne aise kai naye processes introduce kiye hain, jisse FIIs ko india mein invest karna kaafi simple ho gaya hai. Indian securities mein invest karne ke liye, FIIs ko sabse pehle SEBI ke saath register karna padta hai. Once registered, ab question bachta hai trading ka. Toh friends, iske liye international institutions ko kisi well known stockbroker ke saath register karna padta hai. Aur iske baad the process is simple. FIIs can invest through some of the well known exchanges of India.

Doston FIIs India mein kai tarah ke instruments mein invest kar sakte hain - debt market instruments mein bhi, aur equity market mein bhi. Cool, right? Lekin this process also includes one additional step. FIIs ko india mein invest karne ke pehle ek local custodian appoint karna padta hai - basically, ek body jo us FII ke liye india mein holdings ki earnings aur baaki sabhi reporting timely manner mein karegi.

Ye local custodian basically ek regulatory mechanism hai. The government closely monitors the accounts and practices of this local custodian, to ensure that all the guidelines are being properly followed.

As we just discussed, FIIs India ke debt market aur equity market, dono mein invest kar sakti hain. However, foreign entities usually prefer the equity market over the debt market, kyunki calculated investments in the equity market have a potential for high returns.

Debt markets waise toh safe hote hain, foreign investors usually don’t trade much there. Ye isliye, kyunki debt markets mein returns are much lower, and they work well for preserving the capital. But for foreign investors, divesting also means ki currency exchange bhi final returns affect karega. That’s why, equity market ke hot events par aap FPIs ya fir FIIs ke baare mein zaroor sunoge.

This is interesting, right?

Friends, aaj ke podcast mein itna hi. FIIs ki kaafi baat ho gayi hai, let’s help you get to some actual trading. Log on to www.angelbroking.com to keep the learning going. Aaj hi invest karna start karein.

Until then, goodbye from Angel broking my friends, and happy investing!