The Reserve Bank of India has allowed foreign portfolio investors(FPI) to transact in non-convertible debentures/bonds issued by Indian companies either directly or in any manner as per the prevalent/approved market practice.
The central bank, in a notification, said this move is aimed providing flexibility in regard to the manner in which such instruments issued by Indian companies can be acquired by FPIs.
The RBI has asked banks authorised to deal in foreign exchange to bring the contents of this development to the notice of their constituents and customers.
A portfolio investment is a grouping of assets such as stocks, bonds, and cash equivalents. Portfolio investments are held directly by an investor or managed by financial professionals. In economics, foreign portfolio investment is the entry of funds into a country where foreigners deposit money in a country’s bank or make purchases in the country’s stock and bond markets, sometimes for speculation.
FPI typically involve transactions in securities that are highly liquid, i.e. they can be bought and sold very quickly. A portfolio investment is an investment made by an investor who is not involved in the management of a company. This is in contrast to direct investment, which allows an investor to exercise a certain degree of managerial control over a company. Equity investments where the owner holds less than 10% of a company’s shares are classified as portfolio investment. These transactions are also referred to as “portfolio flows” and are recorded in the financial account of a country’s balance of payments. According to the Institute of International Finance, portfolio flows arise through the transfer of ownership of securities from one country to another.