Commencement of investment(Regulation 14)

A Foreign Institutional Investor shall not make any investments in securities in India without complying with the provisions of this Chapter.

1. A Foreign Institutional Investor may invest only in the following:-

   1. securities in the primary and secondary markets including shares, debentures and warrants of companies unlisted, listed or to be listed on a recognised stock exchange in India; and

   2. units of schemes floated by domestic mutual funds including Unit Trust of India, whether listed on a recognised stock exchange or not

   3. dated Government Securities.

   4. derivatives traded on a recognised stock exchange.

   5. commercial paper

2. Notwithstanding anything contained in sub-regulation (1) of this regulation, the total investments in equity and equity related instruments (including fully convertible debentures, convertible portion of partially convertible debentures and tradable warrants) made by a Foreign Institutional Investor in India, whether on his own account or on account of his sub-accounts, shall not be less than seventy per cent of the aggregate of all the investments of the Foreign Institutional Investor in India, made on his own account and on account of his sub-accounts.

   Provided that nothing contained in sub-regulation (2) shall apply to any investment of the foreign institutional investor either on its own account or on behalf of its sub-accounts in debt securities which are unlisted or listed or to be listed on any stock exchange if the prior approval of the Board has been obtained for such investments.

   Provided further that the Board may while granting approval for the investments impose conditions as are necessary with respect to the maximum amount which can be invested in debt securities by the foreign institutional investor on its own account or through its sub accounts.

   Provided further that a foreign corporate or individual shall not be eligible to invest through the hundred percent debt route."

   Explanation: for the purpose of the provisos to this sub-regulation, the expression "debt securities" shall include dated Government securities, commercial paper and treasury bills

3. In respect of investments in the secondary market, the following additional conditions shall apply:-

   1. the Foreign Institutional Investors shall transact business only the basis of taking and giving deliveries of securities bought and sold and shall not engage in short selling in securities;

   Provided that nothing contained in clause (a) shall apply in respect of transactions in derivatives traded on a stock exchange

   2. no transaction on the stock exchange shall be carried forward;

   3. the transaction of business in securities shall be only through stockbrokers who has been granted a certificate by the Board under sub section (1) of section 12 of the securities and Exchange Board of India Act,1992;

   Provided that the transactions in government securities, commercial paper including treasury bills shall be carried out in a manner specified by the Reserve Bank of India

   Provided further that in case of an open offer by a company to buy-back its securities , the foreign institutional investors may sell the securities held by it to such company in accordance with the Securities and Exchange Board of India (Buy-Back of securities) Regulations,1998)

   Provided further that nothing contained in clause (c) shall apply to sale of securities by a Foreign Institutional Investor in response to a letter of offer sent by an acquirer in accordance with the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997.

   4. a Foreign Institutional Investor or a sub account having an aggregate of securities which are worth rupees ten crores or more, as on the latest balance sheet data, shall, subject to such instructions as may be issued from time to time by the Board, settle their transactions entered on or after January 15, 1998 only through dematerialised securities.

4. Unless otherwise approved by the Board, securities shall be registered -

   1. in the name of the Foreign Institutional Investor, provided the Foreign Institutional Investor is making investments on his own behalf; or

   2. in his name on account of his sub-account, or in the name of the sub-account, in case he is investing on behalf of the sub-account:

      Provided that the names of the sub-accounts on whose behalf the Foreign Institutional Investor is investing are disclosed to the Board by the Foreign Institutional Investor.

5. The purchase of equity shares of each company by a Foreign Institutional Investor investing on his own account shall not exceed five ten percent of the total issued capital of that company.

6. In respect of a Foreign Institutional Investor investing in equity shares of a company on behalf of his sub-accounts, the investment on behalf of each such sub-account shall not exceed five ten percent of the total issued capital of that company.

   Provided that in case of foreign corporates or individuals, each of such sub-account shall not invest more than 5% of the total issued capital of the company in which such investment is made

7. The investment by the Foreign Institutional Investor shall also be subject to Government of India Guidelines.

   A Foreign Institutional Investor or sub-account may lend securities through an approved intermediary in accordance with stock lending scheme of the Board

1. A Foreign Institutional Investor or a global custodian acting on behalf of the Foreign Institutional Investor, shall enter into an agreement with a domestic custodian to act as custodian of securities for the Foreign Institutional Investor.

2. The Foreign Institutional Investor shall ensure that the domestic custodian takes steps for -

   1. monitoring of investments of the Foreign Institutional Investor in India;

   2. reporting to the Board on a daily basis the transactions entered into by the Foreign Institutional Investor;

   3. preservation for five years of records relating to his activities as a Foreign Institutional Investor; and

   4. furnishing such information to the Board as may be called for by the Board with regard to the activities of the Foreign Institutional Investor and as may be relevant for the purpose of this regulation.

3. A Foreign Institutional Investor may appoint more than one domestic custodian with prior approval of the Board, but only one custodian may be appointed for a single sub-account of a Foreign Institutional Investor.

A Foreign Institutional Investor shall appoint a branch of a bank approved by the Reserve Bank of India for opening of foreign currency denominated accounts and special non-resident rupee accounts.

1. A Foreign Institutional Investor or any of his employees shall not render directly or indirectly any investment advice about any security in the publicly accessible media, whether real-time or non real-time , unless a disclosure of his interest including long or short position in the said security has been made, while rendering such advice.

2. In case, an employee of the Foreign Institutional Investor is rendering such advice, he shall also disclose the interest of his dependent family members and the employer including their long or short position in the said security, while rendering such advice.

1. Every Foreign Institutional Investor shall keep or maintain, as the case may be, the following books of accounts, records and documents, namely:

   1. true and fair accounts relating to remittance of initial corpus for buying, selling and realising capital gains of investment made from the corpus;

   2. accounts of remittances to India for investments in India and realising capital gains on investments made from such remittances;

   3. bank statement of accounts;

   4. contract notes relating to purchase and sale of securities; and

   5. communication from and to the domestic custodian regarding investments in securities.

2. The Foreign Institutional Investor shall intimate to the Board in writing the place where such books, records and documents will be kept or maintained.

Subject to the provisions of any other law, for the time being in force, every Foreign Institutional Investor shall preserve the books of accounts, records and documents specified in regulation 18 for a minimum period of five years.

1. Every Foreign Institutional Investor shall appoint a compliance officer who shall be responsible for monitoring the compliance of the Act, rules and regulations, notifications, guidelines, instructions etc issued by the Board or the Central Government.

2. The compliance officer shall immediately and independently report to the Board any non-compliance observed by him.

Every Foreign Institutional Investor shall, as and when required by the Board or the Reserve Bank of India, submit to the Board or the Reserve Bank of India, as the case may be, any information, record or documents in relation to his activities as a Foreign Institutional Investor as the Board or as the Reserve Bank of India may require.

Liability for action in case of default (Regulation 21)

A foreign Institutional Investor who -

1. fails to comply with any condition subject to which certificate has been granted;

2. contravenes any of the provisions of the Act, rules or regulations, shall be dealt with in the manner provided under the Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002.