Portfolio Investment Scheme
Also written PIS · Portfolio Investment Scheme (PIS)
The FEMA route through which SEBI-registered FPIs, and NRIs permitted by a designated AD Category-I bank branch, buy shares, convertible debentures and warrants of listed Indian companies within set limits.
In plain language
Foreign money enters Indian companies by two broad doors. Foreign direct investment is for investors taking a strategic stake, under the FDI policy. Portfolio investment is for investors buying listed securities on the market without seeking control.
The Portfolio Investment Scheme (PIS), described in the workbook's FEMA chapter, is the second door. FPIs registered with SEBI may buy shares, convertible debentures and warrants of Indian companies under it. NRIs may too, if they have been permitted by the designated branch of an AD Category-I bank.
The scheme's core is a set of percentage limits per investor and in aggregate, and a monitoring system — run by RBI through custodians and designated banks — to stop those limits being crossed.
How it works
FPI limits in a listed Indian company (as the workbook's Chapter 12 states them):
| Limit | Figure |
|---|---|
| Individual FPI (with SEBI-approved sub-accounts) | Maximum 10% of paid-up capital, or of the paid-up value of each series of convertible debentures |
| All FPIs together | 24% — can be raised up to the sectoral cap with approval of the board and the shareholders |
NRI limits, investing through designated ADs on repatriation and non-repatriation basis:
| Limit | Figure |
|---|---|
| Individual NRI | Up to 5% of paid-up capital / paid-up value of each series of debentures |
| All NRIs together | 10% — can be raised to 24% by a board resolution followed by a special resolution of shareholders |
Transfers. Shares bought by NRIs and FPIs on the stock exchange under PIS cannot be transferred by private sale or gift, to a resident or a non-resident, without prior RBI approval — except that NRIs may transfer to relatives (as defined in section 6 of the Companies Act, 2013) or to a registered charitable trust.
Monitoring. RBI monitors FPI and NRI investment positions in listed companies daily, as reported by custodians and designated AD banks. The designated bank (for NRIs) or custodian (for FPIs) monitors individual limits, prohibited sectors and trade reporting. The designated link office of the AD bank reports PIS transactions for NRIs to RBI daily.
Caution list. When aggregate net purchases by FIIs, NRIs and PIOs reach 2 percentage points below the overall limit, RBI cautions all designated bank branches not to buy more of that company's shares for any FPI, FII, NRI or PIO without prior RBI approval.
A worked example
Illustrative figures, applying the workbook's Chapter 12 limits. A listed company has paid-up capital of Rs 200 crore in 20 crore shares of Rs 10. Its board and shareholders have not raised any limit.
FPIs.
Individual FPI maximum (10%) = 2.0 crore shares
All FPIs (24%) = 4.8 crore shares
Caution list point (24% − 2% = 22%) = 4.4 crore shares
Once aggregate net purchases reach that cut-off — 22%, or 4.4 crore shares — designated bank branches are cautioned not to buy more for foreign investors without RBI's prior approval.
NRIs.
Individual NRI (5%) = 1.0 crore shares
All NRIs (10%) = 2.0 crore shares
Caution list point (10% − 2% = 8%) = 1.6 crore shares
The board wants more NRI room. A board resolution followed by a special resolution takes the NRI aggregate to 24% = 4.8 crore shares.
A transfer. An NRI bought 12,000 shares under PIS and wants to gift them. To his brother — a relative under section 6 — he may. To a friend in Dubai — only with prior RBI approval.
Why NISM asks about it
Chapter 12.4 (Foreign investments under Portfolio Investment Scheme), within the FEMA chapter that follows the FPI Regulations. Expect the 10% / 24% FPI figures, the 5% / 10% / 24% NRI figures and how each is raised, the 2% caution list trigger, and the transfer exception for relatives or a charitable trust.
Common exam traps
- The workbook states the individual FPI limit two ways. Chapter 12.4 says an individual FPI can invest up to a maximum of 10%; Chapter 11.4, quoting Regulation 20(6) of the FPI Regulations, 2019, says holdings must be below 10%, with five trading days to divest a breach or the whole holding is treated as FDI. A "below 10%" question is the Chapter 11 rule; use it when the question is about the FPI Regulations.
- The PIS section still uses older terms — FIIs, SEBI-approved sub-accounts, PIOs — alongside FPIs. The 2019 FPI Regulations in Chapter 11 do not use sub-accounts. Treat the PIS limits as the workbook teaches them, and be alert that this section may not reflect later changes.
- FPI aggregate 24% is raised up to the sectoral cap by board and shareholders; NRI aggregate 10% is raised to 24% by a board resolution followed by a special resolution.
- The caution list cut-off is 2 per cent below the overall limit — for a 24% limit, 22%. It stops further purchases without prior RBI approval; it is not itself the limit.
- NRIs need permission from the designated branch of an AD Category-I bank to invest under PIS.
- NRIs may transfer PIS shares to relatives or a registered charitable trust without RBI approval; everything else by private sale or gift needs it.
Where this is taught
- Series XXI-A · Chapter 11: Taxationintroduced here
- Series III-C · Chapter 11: SEBI (Foreign Portfolio Investors) Regulations, 2019introduced here
Related terms
- CustodianThe SEBI-registered entity that holds a fund's securities in accounts of its own and settles its trades, so the assets sit somewhere other than with the manager who decides what to buy.
- Category-I FPIThe first of the two classes of Foreign Portfolio Investor under SEBI's 2019 FPI Regulations: governments and related investors, pension and university funds, and appropriately regulated entities and funds.
- Category-II FPIThe residual class of Foreign Portfolio Investor under SEBI's 2019 FPI Regulations: everyone not eligible for Category I, such as corporate bodies, family offices, individuals, charities and unregulated funds.
- Offshore derivative instrumentsInstruments issued by an FPI that reference Indian securities; SEBI bars ODIs referencing derivatives and allows onshore derivative hedging only via a separate Category I registration, within limits.
- Non-Resident IndianAn Indian citizen or person of Indian origin who does not meet the resident conditions. NRIs may invest in PMS through NRE or NRO accounts and are taxed only on Indian income.
- PINS accountThe designated bank account through which an NRI's or PIO's purchases and sales of listed Indian securities must be routed, and through which the bank reports those investments to the RBI.
- NRE PMS accountThe repatriable route an NRI uses to invest in PMS under the Portfolio Investment Scheme, where funds and gains can be sent back to the NRI's country of residence.
- NRO PMS accountThe non-repatriable route an NRI uses to invest in PMS: capital and gains stay in India, subject to Indian taxation, unlike the repatriable NRE PMS account.