Investment by FIIs is regulated under SEBI (FII) Regulations, 1995 and Regulation 5(2) of FEMA Notification No.20 dated May 3, 2000.

SEBI acts as the nodal point in the entire process of FII registration. FIIs are required to apply to SEBI in a common application form in duplicate. A copy of the application form is sent by SEBI to RBI along with their 'No Objection' so as to enable RBI to grant necessary permission under FEMA. RBI approval under FEMA enables an FII to buy/sell securities on Stock Exchanges and open foreign currency and Indian Rupee accounts with a designated bank branch.

FIIs are required to allocate their investment between equity and debt instruments in the ratio of 70:30. However, it is also possible for an FII to declare itself a 100% debt FII in which case it can make its entire investment in debt instruments.

FIIs can invest in listed and unlisted securities including shares, debt instruments, dated Government Securities and Treasury Bills.

No individual FII/sub-account can acquire more than 10% of the paid up capital of an Indian company.

All FIIs and their sub-accounts taken together cannot acquire more than 24% of the paid up capital of an Indian Company.

Indian Companies can raise the above mentioned 24% ceiling to the Sectoral Cap / Statutory Ceiling as applicable by passing a resolution by its Board of Directors followed by passing a Special Resolution to that effect by its General Body in terms of Press Release dated Sept.20,2001 and FEMA Notification No.45 dated Sept. 20,2001.

Explanation: Presence of Sectoral Cap/ Statutory ceiling means that foreign investment from all sources cannot exceed a specified level. A Company to which no sectoral cap/statutory ceiling is applicable can raise the limit of permissible FII investment to 100% of the paid up capital. A Company to which a 49% cap is applicable can raise the limit of permissible FII investment to 49% and if there is an existing foreign direct investment of 15%, possible FII investment can only be up to 34%.

No permission from RBI is needed so long as the FIIs purchase and sell on recognized stock exchange. All non-stock exchange sales/purchases require RBI permission.

In order to ensure that the sectoral / statutory ceilings on foreign investment in a company are not violated due to investment by FIIs, RBI monitors these ceilings for the companies in respect of which sectoral caps /statutory ceiling have been indicated by Government of India.

When the total holdings of FIIs reaches within 2% of the applicable limit, Reserve Bank issues a notice to all concerned that any further purchases of the shares of the said Company requires prior approval of RBI.

FIIs can avail of the Forward Cover Facility from the Authorized Dealer subject to certain conditions.

High Net worth Individuals /foreign corporates can invest through SEBI Registered FIIs subject to an sub-limit of 5% each within the aggregated limit of 24%.

Registered Foreign Institutional Investors (FIIs) are allowed to trade in all exchange traded derivative contracts approved by SEBI from time to time subject to the limits prescribed by SEBI.

Application for registration as an FII may be made in Form A. The format of Form A is provided in the SEBI(FII) Regulations, 1995. The application form and all supporting documents must be submitted in duplicate, one set each for SEBI and Reserve Bank of India. Both sets of application are to be sent to SEBI only. If the applicant is eligible and all documents are submitted with the application, the eligibility is generally conveyed with 10 to 12 days of receipt of application by SEBI.

Application may be sent to:

The Division Chief
FII Division
Securities and Exchange Board of India,
224, Mittal Court, 'B' Wing, 1st Floor,
Nariman Point, Mumbai - 400 021.
INDIA.

The registration procedure operates as a single window procedure through SEBI in which the following steps are involved.

• SEBI forwards one set to Reserve Bank of India.

• The application is processed by SEBI to determine its eligibility for grant of registration as foreign institutional investor.

• After the initial processing is complete, SEBI writes to Reserve Bank of India mentioning the eligibility of the applicant. At the same time , a letter is sent to applicant asking it to submit the registration fees of US$ 5,000 through a demand draft drawn in favour of "Securities and Exchange Board of India" payable at New York.

• Reserve Bank of India gives approval to the FII through its designated bank . This approval is granted Foreign Exchange Management Act and enables the FII(s) to open a bank account. This is a special non-resident rupee account of the FII meant purely for inward remittance and meeting payment obligation with regard to securities market. It may be noted that all balance lying in this account are fully repatriable.

• Upon receipt of fees from the applicant and FEMA approval from Reserve Bank of India , SEBI grants the certificate of registration, which is valid for five years, and may be renewed thereafter.

• Application in Form A duly signed by the authorised signatory of the applicant.

• Certified copy of the relevant clauses or articles of the Memorandum and Articles of Association or the agreement authorizing the applicant to invest on behalf of its clients

• Audited financial statements and annual reports for the last one year , provided that the period covered shall not be less than twelve months.

• A declaration by the applicant with registration number and other particulars in support of its registration or regulation by a Securities Commission or Self Regulatory Organisation or any other appropriate regulatory authority with whom the applicant is registered in its home country.

• A declaration by the applicant that it has entered into a custodian agreement with a domestic custodian together with particulars of the domestic custodian.

• A signed declaration statement that appears at the end of the Form.

• Declaration regarding fit & proper entity.

As per Regulation 6 of SEBI (Foreign Institutional Investors) Regulations,1995, Foreign Institutional Investors are required to fulfill the following conditions to qualify for grant of registration:

1. Applicant should have track record, professional competence, financial soundness, experience, general reputation of fairness and integrity;

2. The applicant should be regulated by an appropriate foreign regulatory authority in the same capacity/category where registration is sought from SEBI. Registration with authorities, which are responsible for incorporation, is not adequate to qualify as Foreign Institutional Investor.

3. The applicant is required to have the permission under the provisions of the Foreign Exchange Management Act, 1999 from the Reserve Bank of India.

4. Applicant must be legally permitted to invest in securities outside the country or its in-corporation / establishment.

5. The applicant must be a "fit and proper" person.

6. The applicant has to appoint a local custodian and enter into an agreement with the custodian. Besides it also has to appoint a designated bank to route its transactions.

7. Effect Payment of registration fee of US $ 5,000.00

SEBI would generally communicate the eligibility for grant of registration as Foreign Institutional Investor, within 10-12 days of receipt of complete application with relevant enclosures.

A sub-account includes those institutions, established or incorporated outside India and those funds, or portfolios, established outside India, whether incorporated or not and corporates and individuals, on whose behalf investments are proposed to be made in India by a Foreign Institutional Investor. It may however be noted that Non-resident Indians and Overseas Corporate Bodies (OCB) are not entitled to get registered as sub- account.

There are two categories of sub-accounts:

1. Broad-based / Proprietary sub-accounts which are allowed to individually invest upto 10% of the total issued capital.

2. Foreign Corporates and foreign individuals. Investments by each sub-account in this category should not exceed 5% of the issued capital.

The FII has to apply on behalf of the proposed sub-account by submitting Annexure B of the Regulations duly filled and signed by both the FII and Sub-Account . Fees of US$ 1000 by means of a demand draft favouring " Securities and Exchange Board of India " payable at New York should be submitted along with Annexure B

A broad based fund is a fund which has at least 20 shareholders and no single investor holds more than 10% of shares and units of the fund. In case, if any investor holds more than 10% of shares or units of the fund, then it in turn should be broad based. The proprietary funds of the FII shall not be invested through a broad-based fund.

A Proprietary Fund is a fund wherein the ownership of the funds is that of the Foreign Institutional Investor.

No. Proprietary, Foreign corporates and foreign individuals need not be broad-based

In case of the registered Foreign Institutional Investor, it would take 3 working days from the date of receipt of complete application and fees.

No.

Registration fee for a Foreign Institutional Investor is US $ 5,000 and that for a sub-account is US $ 1,000. The fee may be paid by a bankers cheque or bank draft drawn in favour of "Securities and Exchange Board of India" payable at a bank in New York.