FPIs investment in corporate debt securities will no longer face short-term investment and concentration limits

Foreign Portfolio Investors' (FPIs) investment in corporate debt securities will no longer face short-term investment limit and concentration limit, according to RBI.

This relaxation comes in the backdrop of the financial markets facing volatility due to geopolitical tensions and tariffs wars.

Arvind Kanagasabai, Executive Vice President-Integrated Treasury, Tamilnad Mercantile Bank, said removal of short-term investent and concentration caps may be aimed at giving more options to FPIs to park the proceeds from their sale in the equity markets in corporate debt securities at attractive interest rates without having to immediately repatriate the proceeds.

At present, investments by Foreign Portfolio Investors (FPIs) in corporate debt securities through the General Route are subject to the short-term investment limit and the concentration limit.

On a review, and with a view to providing greater ease of investment to FPIs, it has been decided to withdraw the requirement for investments by FPIs in corporate debt securities to comply with the short-term investment limit and the concentration limit, RBI said. in its directions on Investments by Foreign Portfolio Investors in Corporate Debt Securities through the General Route .The directions come into immediate effect.

Earlier regulations

Hitherto, investments by an FPI in corporate debt securities with residual maturity up to one year cannot exceed 30 per cent of the total investment of the FPI in these securities.

Further, investment in corporate debt securities by an FPI (including its related FPIs) cannot exceed 15 per cent of prevailing investment limit for these securities in case of long-term FPIs and 10 per cent of prevailing investment limit for other FPIs.

Venkatakrishnan Srinivasan, Founder and Managing Partner of Rockfort Fincap LLP, observed that the RBI scrapping both the 30 per cent short-term investment cap and single investor concentration limits marks a positive reform that enhances market flexibility and could boost liquidity.

However, despite these changes, foreign investors may continue to remain cautious due to narrowing US-India 10 year yield spreads falling to around 200 basis points and external risk factors.

We have seen a large amount of FPI inflows during India's bond inclusion by JP Morgan Bond Index Fund and Bloomberg Index Fund. However, we have witnessed FPI withdrawal during the last few months, he said.

Venkatakrishnan noted that while the reforms create better long-term conditions for corporate bond market growth, meaningful FPI inflows may only materialise when FPIs find the yields attractive.

RBI has done its groundwork, but the timing of foreign investment resurgence depends on yields and global macroeconomic factors.

www.thehindubusinessline.com, dt. 09-05-2025