Foreign Portfolio Investors (FPIs), a newly created class of overseas investors, will be able to invest up to $81 billion (close to Rs 4 lakh crore) in government and corporate debt securities in India.

This would include investments up to $30 billion in government debt and up to $51 billion in corporate debt securities under the new FPI regime, which would come into force from next month.

According to market regulator SEBI, government securities would need to have a residual maturity period of at least one year to be eligible for investments from this new class of investors that would eventually encompass existing categories like FIIs, sub-accounts and QFIs.

FPIs would also be permitted to invest in unlisted non-convertible debentures or bonds issued by corporates in the infrastructure sector, SEBI said in a detailed note on its new FPI guidelines. Besides, FPIs can invest in privately placed bonds if it is listed within 15 days.

Investment limit

The investment limit of $30 billion for government securities would include up to $10 billion by Category-I FPIs such as sovereign wealth funds, multilateral agencies, endowment funds, insurance funds, pension funds and foreign central banks.

An investment of up to $20 billion in government debt securities would be allowed to all kinds of FPIs.

For corporate debt securities, the overall cap will be $51 billion, which would include $2 billion in commercial papers.

In the Indian currency, the investment limit would be Rs 2,44,323 crore for corporate debt and Rs 1,53,569 crore for government debt securities.

3 catergories of FPIs

The new regime divides FPIs into three categories as per their risk profile, while registration and operational procedures for them would be simpler.

Category-I will be the lowest risk category comprising foreign governments and government-related foreign investors.

Category-II FPIs will include regulated entities, broad-based funds whose investment managers are regulated, university funds, university-related endowments and pension funds. All other FPIs would come under Category-III.

Existing overseas investors such as FIIs, sub-accounts and QFIs will have to convert to the new regime eventually.

FPIs will be barred from purchasing short-term government securities — the Treasury Bills. The existing investments in T-Bills by FIIs and other overseas investors converting into FPIs will be allowed to taper off on maturity or sale.

Among others, FPIs have been allowed to invest in dated government securities, commercial papers, rupee denominated credit enhanced bonds, security receipts issued by asset reconstruction companies, listed and unlisted non-convertible debentures (NCDs) or bonds issued by an infrastructure firm and NCDs issued by non-banking financial companies (NBFCs).

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