MUMBAI: The Securities and Exchange Board of India (Sebi) on Tuesday proposed regulatory relaxations for foreign portfolio investors (FPIs) investing solely in Indian government bonds under the Voluntary Retention Route (VRR) and Fully Accessible Route (FAR).
Sebi has suggested easing registration and other compliance requirements for a new FPI category — those investing exclusively in government bonds — termed IGB-FPIs.
Identification as an IGB-FPI will take place at the time of registration. Existing FPIs will also have the opportunity to transition into this category to avail the benefits.
However, existing FPIs opting for this transition must declare and divest all holdings except those permitted under the IGB-FPI category. They will also be required to close demat and trading accounts associated with other investments.
These proposals come in the wake of Indian government bonds being included in global indices such as the JP Morgan Global Emerging Market Bond Index, Bloomberg EM Local Currency Government Index, and FTSE Russell Emerging Markets Government Bond Index — with the latter effective from September 2025.
Sebi has proposed allowing non-resident Indians (NRIs), overseas citizens of India (OCIs), and resident Indian individuals (RIs) to invest in an IGB-FPI without any restriction. Currently, NRI/OCI/RI contributions are limited to 25 per cent per investor and 50 per cent in aggregate for any FPI. Under the new proposal, NRIs and OCIs will be allowed to exercise control over IGB-FPIs.
However, certain existing restrictions on RIs will continue.
The regulator also proposes exempting IGB-FPIs from furnishing investor group details, as VRR and FAR investments are not subject to security-wise or concentration limits.
In addition, Sebi plans to relax disclosure requirements for material changes and reporting meant for monitoring equity investment limits, as these will not apply to bond-only FPIs.
VRR and FAR routes allow non-resident investment in debt securities without certain restrictions, making them attractive channels for long-term investors.
As per Sebi data, the aggregate holding of FPIs in FAR-eligible government bonds stood at around ₹3 trillion as of March 2025.
Sebi has also proposed aligning the periodicity of know your customer (KYC) reviews for such FPIs with those prescribed by the Reserve Bank of India (RBI). RBI guidelines require KYC updates once every 2, 8, or 10 years based on the investor’s risk category. Currently, Sebi mandates KYC review annually or once every three years, depending on the risk level.
Source: Business Standard
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