The Reserve Bank of India reopened a window of foreign investment in local debt via the “voluntary retention route”, which allows investors easier rules in return for a commitment to remain invested for a longer period.
Rule Changes
Along with increasing the limit, the RBI also notified certain rule changes for investments using this route. One key change is the extent of short-term securities that FPIs can hold.
- Short-term investments by an FPI into government securities and treasury bills can now be up to 30 percent of the total investment of an FPI compared to 20 percent earlier.
- Similarly, the short-term investment limit by an FPI into corporate bonds has been raised to 30 percent of the investor’s total investment.
- FPI investments in debt instruments issued by asset reconstruction companies are exempt from the short-term limits.
- FPI investments in debt instruments issued by an entity under the Corporate Insolvency Resolution Process are also exempt from short-term limits.
FPIs have also been allowed to invest in exchange traded funds that invest only in debt instruments, a move that will help the recently launched Bharat Bond ETF.
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