FPI Investment in India- Eligibility and Regulations

1. Introduction

The record-breaking listings of securities on Indian stock exchanges provide Foreign Portfolio Investment (“FPI”) with significant avenues to participate in India’s growth story and invest in some of the country’s most promising and innovative startups, blue chip companies. Strong corporate growth, increasing market liquidity and rising investor confidence have positioned India as an ideal destination for global investors seeking strategic opportunities.

Although, Foreign portfolio investors have withdrawn approximately INR 71,500 crore from Indian capital markets in calendar year 2025, the attractive valuations and discounted investment opportunities, present a favourable entry point for renewed FPI participation in India. Despite ongoing geopolitical tensions, Indian companies have demonstrated steady growth, positioning India as one of the world’s fastest-growing investment destinations, driven by a robust economy, a rapidly expanding consumer base and dynamic financial markets.

Global institutions, including foreign portfolio investors, have assigned an overweight rating to Indian securities in their portfolio allocations. To facilitate and encourage this inflow of foreign capital, India has established multiple investments routes that provide overseas investors with diverse investment opportunities.

Foreign Portfolio Investment in India refers to investments made by non-residents in financial assets such as listed shares, government securities, corporate bonds, or mutual fund units. In simple terms, it means that foreign investors put their money into India’s stock or bond markets without taking control or ownership of the investee company’s operations.

While FPI is often associated with Foreign Direct Investment (“FDI”), the key difference lies in the level of control and ownership. FPI involves a more passive investment approach with no control over company operations whereas FDI involves direct ownership and active management participation in the business operations.

Compared to FDI, foreign portfolio investment in India offers a simpler, faster, and more flexible route for foreign portfolio investors to invest in India. It allows them to gain exposure to India’s growing economy and flexible capital markets without the onus of running a business.

2. FPI vs FDI: The Simple Difference

To help you understand the distinction between FPI vs FDI more clearly, this overview outlines their structure and benefits. It also highlights their long-term impact. Here is a comprehensive comparison of FPI vs FDI:

3. Who can Register as an FPI in India? (Eligibility criteria)

To invest in India securities through the FPI route, an entity must meet the eligibility criteria prescribed under the SEBI (Foreign Portfolio Investors) Regulations, 2019. Criteria mentioned in the regulations, ensure that only regulated and qualified investors participate in India’s capital markets. Eligible entities must apply for registration through a custodian to obtain a Certificate of registration. Only upon receiving this certificate an entity will be recognised as a Foreign Portfolio Investment in India and can start its investment journey in India.

FPI in India is divided into two categories:

Further based on fulfillment of certain conditions, the entities listed above can proceed with registration for FPI.

4. FPI Guidelines and Regulations in India (2025 Update) 

India has become an attractive destination for global investors. FPI regulations in India offers a streamlined way to participate in the country’s capital markets. To ensure transparency, stability, and ease of investment, FPI activities are regulated primarily by SEBI and the RBI. Understanding the framework, eligible instruments and recent 2025 regulatory updates, is essential for foreign investors seeking to navigate India’s financial landscape efficiently.

Main Regulatory Bodies for FPI are:

• Securities and Exchange Board of India: Regulation with respect to Foreign portfolio investor is governed by SEBI 
• Reserve bank of India: Overseas registration, compliance and investment activities of FPIs through custodian bank.

FPIs can invest in the following securities:

• Listed shares on the stock exchange
• Mutual funds (both equity and debt oriented)
• Government securities
• Bonds
• Units of REITs, InvITs, and Category III Alternative Investment Funds
• Derivates traded on stock exchange
• Listed/unlisted Non-convertible debentures 
• Security Receipts and Pass Through Certificates issued by Asset Reconstruction Companies

2025 Regulatory Highlights

5. FPI Taxation

Before investing in India through the FPI route, it is important to understand the tax implications associated with such investments. The tax implication on income earned by FPIs is governed by the Income-tax Act, 1961 (“the Act”), along with relevant rules, circulars and notifications issued by the Indian tax authorities.

Tax treatment varies based on the nature of income, the duration of holding, and the investor’s country of residence. In some cases, FPIs may also benefit from provisions under an applicable Double Taxation Avoidance Agreement (“DTAA”), which can help to reduce tax liability.

The primary sources of taxable Income are:

1. Capital Gains

Capital Gains arise on transfer of capital assets such as shares, bonds and other securities. Accordingly, any profit earned on transfer is subject to capital gains tax under the Act.

The prescribed rates for capital gain taxation are as follows:

2. Income in the nature of Dividend / Interest:

subject to fulfillment of certain conditions

The income is also subject to surcharge and Health and Education Cess in addition to the rates quoted above.

3. Claim of benefit under DTAA:

Foreign portfolio investors who are residents in countries that have entered in a DTAA with India may claim benefit under such DTAA. 

To avail DTAA benefits, the following requirements must be fulfilled:

Tax Residency Certificate: A certificate issued by the government authority of foreign portfolio investor’s country of residence confirming that the investor is a tax resident of that country.

Filing of Form 10F: A form prescribed under the Act, which must be duly filed on the portal, to be eligible for claiming benefit under DTAA.

Obtaining a No permanent establishment declaration on record.

6. How FPI Differs from setting up a business

When it comes to investing in India, foreign investors especially company can choose between actively building a business presence or taking a more passive approach by merely having a financial participation. FPI represents the latter, a way for investors to finance businesses by investing in eligible securities, without establishing or managing a business themselves. Foreign companies can make presence in India by setting up a subsidiary, a branch, liaison office or a joint venture.

However, setting up a business requires significant capital, operational involvement, and long-term commitment, restructuring of ownership to establish subsidiaries, etc. On the other hand, FPI offers a flexible and liquid route to benefit from India’s growing economy. To maintain stability and transparency, SEBI regulates who can invest and under what conditions, making it essential for investors to understand the eligibility norms and regulatory framework before entering the market.

Here’s a broad overview of how FPI differs from setting up a business:

7. Is FPI the right fit for you?

FPI offers an accessible and efficient way for global investors to participate in India’s economic growth story. It suits individuals and institutions looking to diversify their portfolios and benefit from India’s expanding markets, without taking on the responsibilities of owning or managing a business. Company Registration services in india will help streamline this process and give investors a structured way to participate.

For those who prefer flexibility, liquidity, and no operational involvement, FPI can be an excellent choice. However, it’s essential to consult qualified financial and legal advisors to understand the regulatory requirements, tax implications, and market risks before investing.

As India continues to strengthen its financial ecosystem and attract global capital, 2025 and the years ahead promise significant opportunities for investors ready to tap into the nation’s growth story.