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Unit-5

FII

Who are Institutional Investors


Institutional investors are organizations which pool large sums of money and invest those sums in securities, real property and other investment assets. They can also include operating companies which decide to invest their profits to some degree in these types of assets. Types of typical investors include banks, insurance companies, retirement or pension funds, hedge funds, investment advisors and mutual funds.

Their role in the economy is to act as highly specialized investors on behalf of others. For instance, an ordinary person will have a pension from his employer. The employer gives that person's pension contributions to a fund. The fund will buy shares in a company, or some other financial product. Funds are useful because they will hold a broad portfolio of investments in many companies. This spreads risk, so if one company fails, it will be only a small part of the whole fund's investment.

Institutional investors will have a lot of influence in the management of corporations because they will be entitled to exercise the voting rights in a company. They can actively engage in corporate governance. Furthermore, because institutional investors have the freedom to buy and sell shares, they can play a large part in which companies stay solvent, and which go under. Influencing the conduct of listed companies, and providing them with capital are all part of the job of investment management.

FII
Foreign Institutional Investor (FII), refers to the non local investors when invest in the financial market of a country. In other words, the term is most commonly used in India when a foreign entity i.e. an entity which is established or registered outside India proposes to make investment in the financial market of India.

FII-Meaning
The term foreign institutional investment denotes all those investors or investment companies that are not located within the territory of the country in which they are investing. These are actually the outsiders in the financial markets of the particular company. Foreign institutional investment is a common term in the financial sector of India.

The type of institutions that are involved in the foreign institutional investment are as follows: Mutual Funds Hedge Funds Pension Funds Insurance Companies

Who Can Get Registered As Foreign Institutional Investors (FII) in India?


Foreign Institutional investors also known as International institutional investors need to register themselves with the Security and Exchange Board of India (SEBI) in order to participate in the Indian market. Foreign corporate and individuals and belong to any of the under given categories can be registered for FII : Pension Funds Mutual Funds Insurance Companies Investment Trusts Banks University Funds Endowments Foundations Charitable Trusts / Charitable Societies

Following entities proposing to invest on behalf of broad based funds, are also eligible to be registered as FIIs: Asset Management Companies Institutional Portfolio Managers Trustees Power of Attorney Holders

Advantages of FII
Increases Forex reserves Increases domestic savings Increases domestic investments Availability of capital reserve

Disadvantages of FII
Problem of inflation False representation of economy Problem for small investors Hot Money