SEBI Proposes Relaxed Norms for FPIs Investing Only in Indian Government Bonds

The Securities and Exchange Board of India (SEBI) has proposed a new framework to ease regulatory requirements for Foreign Portfolio Investors (FPIs) investing exclusively in Indian government bonds.

• The move follows India’s upcoming inclusion in major global bond indices, including:
  • JP Morgan Global Emerging Markets Bond Index
  • Bloomberg EM Local Currency Government Index
  • FTSE Russell EM Government Bond Index (effective September 2025)

Key Proposals

• Creation of a New Category: IGBFPI
  • FPIs investing only through the Voluntary Retention Route (VRR) and Fully Accessible Route (FAR) will be classified as Indian Government Bond FPIs (IGBFPIs).
  • This classification will be assigned at the time of registration or transition by existing FPIs.
• Transition Guidelines for Existing FPIs
  • Existing FPIs can opt-in as IGBFPI by:
    • Declaring their intent.
    • Divesting non-eligible holdings (i.e., securities other than permitted government bonds).
    • Closing related demat and trading accounts.
• Relaxed Ownership Restrictions
  • Current FPI rules cap NRI/OCI/RI investment at:
    • 25% individually
    • 50% collectively of FPI corpus.
  • Under the new proposal:
    • NRIs and OCIs can control IGBFPIs with no cap.
    • Resident Indians (RIs) may still face certain restrictions, which will remain.
• Purpose and Benefit
  • Aims to attract passive foreign inflows by simplifying compliance.
  • Helps align regulatory framework with India’s increasing global bond market integration.
  • Supports smoother execution for funds benchmarking global indices.

Implications for the Market

• These changes could enhance foreign participation in government securities, improving liquidity and depth in the bond market.
• It strengthens India’s positioning as a trusted sovereign debt market in the emerging market investment universe.

BS