Definition of ‘Portfolio Investment’
A portfolio investment is a passive investment in securities, which entails no active management or control of the securities by the investor. A portfolio investment is an investment made by an investor who is not particularly interested in involvement in the management of a company. The purpose of the investment is solely financial gain.
It includes investment in an assortment or range of securities, or other types of investment vehicles, to spread the risk of possible loss due to below-expectations performance of one or a few of them.
This expected return is directly correlated with the investment’s expected risk.
Portfolio investment is distinct from direct investment, which involves taking a sizeable stake in a target company and possibly being involved with its day-to-day management.
Explaining ‘Portfolio Investment’
Portfolio investments can span a wide range of asset classes – stocks, government bonds, corporate bonds, Treasury bills, real estate investment trusts, exchange-traded funds, mutual funds, certificates of deposit and so on.
Portfolio investments can also include options, warrants and other derivatives such as futures, and physical investments like commodities, real estate, land and timber.
The composition of investments in a portfolio depends on a number of factors, among the most important being the investor’s risk tolerance, investment horizon and amount invested.
For a young investor with limited funds, mutual funds or exchange-traded funds may be appropriate portfolio investments.
For a high net worth (HNW) individual, portfolio investments may include stocks, bonds, commodities and rental properties.
Portfolio investments for the largest institutional investors such as pension funds and sovereign funds include a significant proportion of infrastructure assets like bridges and toll roads. This is because their portfolio investments need to have very long lives, so the duration of their assets and liabilities match.
Portfolio investment scheme for NRIs relaxed
Banks shall be “free to permit their branches to administer the scheme for NRIs”
The Reserve Bank of India, in August 2013, simplified rules governing portfolio investments such as equity and debt by non-resident Indians (NRIs) to attract inflow of foreign currency.
Under the portfolio investment scheme (PIS) for NRIs, banks were given a unique code for each branch, making it cumbersome for them to administer the scheme.
The RBI has now dispensed with the unique code for branches, and said banks shall be “free to permit their branches to administer the PIS scheme for NRI.’’
The designated branch of the bank will grant a one-time permission to the NRI applicant for the purchase and sale of shares or convertible debentures of an Indian company .
“Two distinct permission letters (for repatriation basis and non-repatriation basis) shall be issued as per the prescribed format”.
“The designated branch will open a separate sub-account of NRE/NRO account (opened and maintained by an NRI in terms of the Foreign Exchange Management (Deposit) Regulations, 2000) for the exclusive purpose of routing the transactions under PIS on behalf of an NRI,” .
“In case, where an NRI is eligible to make investment in India, his resident power of attorney holder can be permitted by AD bank to operate NRE(PIS)/NRO (PIS) account to facilitate investment under the scheme”.
Shares or debentures purchased will be held and registered in the name of the NRI.
Shares or debentures acquired by the NRI under the scheme will not be pledged for giving loan to a third party without prior permission of the RBI.
Bank will sensitise the branches administering the PIS scheme to ensure that NRIs are not allowed to invest in any Indian company which is engaged or proposes to engage in the business of chit fund, nidhi company, agricultural or plantation activities.
They cannot invest in real estate business excluding development of townships, construction of residential or commercial premises, roads or bridges, educational institutions, recreational facilities, city and regional level infrastructure, townships.
Leave a Reply