With the change in rules, if a foreign fund buys less than 10 per cent stake in a company, such an investment will be considered FPI regardless of the route chosen. “The classification of an investment should be based on the purpose of such investment rather than how much stake is being bought.”FDI and FPI routes are used by foreign funds for entirely different purposes. Investments through the FDI route are strategic in nature, and meant for the long term. Several FDI investors also get a say in the management of the investee company, including board seats.By contrast, portfolio investments are short-term in nature, with investors having the liberty to buy or sell stock on the bourses. Also, FPIs are allowed to invest only in listed securities, while FDI investments can be made even in unlisted assets.“The change appears to be an unintended consequence of the new FPI and FDI classification,” said Rajesh Gandhi, partner, Deloitte .

Source: Economic Times October 11, 2019 02:18 UTC