As per India’s stock market regulator Securities and Exchange Board of India (SEBI), Foreign Portfolio Investors (FPIs), a newly created class for 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 June 2014. FPIs would also be allowed to invest in unlisted non-convertible debentures or bonds issued by corporates in the infrastructure sector. Furthermore, FPI can invest in privately placed bonds if it is listed within 15 days.
Under the new FPI regime:
- Investment limit of $30 billion for government securities would include up to $10 billion by Category-I FPIs
- All categories of FPIs will be allowed an investment of up to $20 billion in government debt securities.
- For corporate debt securities, the overall cap will be $51 billion, which would include $2 billion in commercial papers.
- FPIs 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 (NBFC).
- FPIs barred from buying 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.
- FPIs have been classified into following 3 categories as per their risk profile:-
Category I: Lowest risk entities comprising foreign government and government-related foreign investors. Examples are sovereign wealth funds, multilateral agencies, endowment funds, insurance funds, pension funds and foreign central banks.
Category II – Regulated entities, broad-based funds whose investment managers are regulated, university funds, university-related endowments and pension funds etc.
Category III – All other FPIs would come under this category.
Existing overseas investors such as FIIs, sub-accounts and QFIs will have to convert to the new regime eventually.