How can foreign citizens invest in Indian stocks?

Question: Some of my friends who are citizens of the UK and Europe would like to invest directly in stocks and shares of Indian companies. Is it possible for them to do so? If not, what avenues are open for investing in the capital market?

- HP Ranina

ANSWER: Foreign citizens can invest in Indian stocks and shares only through the foreign portfolio investors (FPIs) route. They can acquire Indian securities through Category II FPIs which include regulated entities like mutual funds, investment trusts, asset managers, banks and insurance companies which are registered with the Securities and Exchange Board of India (SEBI). Restricting investments through such regulated investment vehicles ensures that SEBI's regulations are strictly complied with.

Foreign individuals can invest in Indian listed equities through indirect routes, such as offshore derivative instruments (ODIs) or participatory notes. P-notes are backed by the securities they hold in India and are issued overseas by registered foreign brokers. Accountability is placed on FPIs to ensure compliance while issuing ODIs and P-notes. However, this option of investment is discouraged due to concerns related to lack of transparency.