Foreign Portfolio Investment (FPI) in India, regulated by the Securities and Exchange Board of India (SEBI) and the Income Tax Act, 1961, is a key avenue for foreign investors. What is FPI in India, and how can investors manage its tax impact? Let’s break it down.
What is FPI and why it matters:
Foreign portfolio investment (FPI) refers to investment by foreign investors in a country’s equity and debt markets without obtaining direct control of companies. For example, when a foreign fund buys shares of an Indian publicly‑listed company, that is FPI. From an Indian perspective, FPI adds liquidity, deepens markets and helps align domestic valuations with global flows.
This form of investment is more liquid and responsive to market sentiment compared to long‑term direct investment.
In addition, FPI is often complemented by institutional flows and local investor demand, creating a dynamic investment landscape in India.
Current FPI Trends in India:
Over the last few years, India has seen strong FPI inflows. For instance, during FY 23‑24 net FPI flows reached a record ₹3.39 lakh crore across equity and debt. In addition, one source notes FPIs infused approximately ₹19,860 crore (US$2.32 billion) in May 2025 alone.
However, the pattern is not entirely one‑way. There are periods of outflow, valuation pressures and global risk factors that reduce appetite. For example, net inflows dropped significantly in 2024. Thus, while the trend is positive, it remains volatile and driven by external cues as much as domestic fundamentals.
How Regulation and Policy Shape FPI Flows:
The regulatory environment strongly influences FPI behaviour in India. The Securities and Exchange Board of India (SEBI) has recently doubled the asset‐threshold for FPI disclosure to Rs 50,000 crore from Rs 25,000 crore. In addition, the cap on FPI investment in government and corporate bonds is monitored by the RBI, which maintains ceilings (for example 6 % for central government securities) to ensure market stability.
Thus, policy changes can act as both invitation and deterrent for foreign portfolio flows, especially under shifting global risk sentiment.
Challenges and considerations:
Despite the upside, there are key risks and policy issues. Because FPIs are non‑resident and often mobile, sudden reversals can disrupt markets. External global shocks (e.g., US rate hikes) can trigger outflows. Regulatory caps also play a role. For instance, the RBI maintains investment ceilings for FPIs in government and corporate bonds.
In addition, FPI flows could lead to over‑valuation in some sectors, raising concerns about bubbles. Domestic investors may face competition for allocations and shifting risk profiles. India is working to improve the framework—streamlining registration for FPIs, enhancing disclosures and improving access.
Conclusion:
FPI in India is a dynamic and influential element of the country’s capital markets. It adds foreign capital, signals global confidence, and supports liquidity and market growth. With India’s economy poised for growth and global attention increasing, FPIs are likely to remain vital players in India’s investment ecosystem. Ready to invest in Indian markets? Explore more financial insights now!
– Ketaki Dandekar (Team Arthology)
Read more about Foreign Portfolio Investment (FPI) here – https://www.investopedia.com/foreign-portfolio-investment.asp