Foreign Portfolio Investment (FPI)

09.09.2025

Foreign Portfolio Investment (FPI)

Context
India remains the world’s fastest-growing major economy, posting robust GDP growth of 7.4% and 7.8% in early 2025. However, foreign capital inflows, particularly through Foreign Portfolio Investments (FPI), have not fully reflected this economic momentum.

Definition and Features
FPIs are investments by foreign individuals or entities in the financial assets of a country such as stocks, bonds, mutual funds, and other securities without gaining control over the companies invested in. They seek short- to medium-term capital gains and returns.

Distinction from Foreign Direct Investment (FDI)

• FPIs are passive investors concerned with financial returns, lacking management control, and are more volatile, often called “hot money.”
• FDIs involve acquiring lasting business interests, establishing operations, or exerting managerial control, making them stable and long-term commitments.

Regulation
 

Regulators: India regulates Foreign Portfolio Investors (FPIs) through SEBI and RBI.

• SEBI’s role: Governs registration, investment limits, reporting, and compliance under FPI Regulations, 2019.
   
• RBI’s role: Monitors foreign exchange and capital movement related to FPIs.
   

Significance

• Market Impact: FPIs enhance liquidity and deepen capital markets, aiding domestic firms and governments in raising funds.
   
• Foreign Exchange: They bring foreign capital inflows, signaling global confidence in India’s economy.
   
• Risks: FPIs’ volatile investments can trigger sudden stock market and currency fluctuations
• Long-term Investment Potential: FPIs can encourage structural reforms and better corporate governance in Indian companies due to their focus on sustainable returns and adherence to global investment standards.
   

Conclusion

Foreign Portfolio Investment is a vital but volatile capital source that enhances market efficiency and global integration. Sound regulation and macroeconomic stability are essential for maximizing benefits while mitigating risks from sudden capital flow reversals, ensuring sustainable economic growth.