SEBI plans compliance easing for FPIs investing through VRR, FAR

SEBI has proposed to significantly ease compliance norms for foreign portfolio investors investing exclusively in Indian Government Bonds under the Voluntary Retention Route and Fully Accessible Route.
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The Securities and Exchange Board of India (SEBI) has proposed to relax regulatory requirements for foreign investors investing solely in Indian government bonds under the voluntary retention route (VRR) and fully accessible route (FAR).

These foreign portfolio investors (FPIs) are proposed to be excluded from several FPI regulations for ease of doing business, risk-based approach, and optimum regulation. “Simplification of onboarding process and rationalization of ongoing regulatory compliances is expected to further help in facilitating investments by FPIs in Indian government bonds (IGBs),” SEBI said in a draft paper, inviting public comments by June 3.

These proposals come in light of the aggregate holding of FPIs in FAR-eligible government bonds rising to ₹3.06 lakh crore as of March 2025 from ₹1.74 lakh crore a year ago. The total investment limits allotted under VRR stand at ₹2.05 lakh crore as of March 2025, from ₹1.75 lakh crore a year ago. Inclusion in the JPMorgan Global Bond Index and Bloomberg Emerging Market Bond Index so far and in the FTSE Russell Emerging Markets Government from September—are expected to bring more inflows.

Compliance relaxations

IGB-FPIs will be identified at the time of registration, but existing FPIs can also opt to transition by declaring and divesting all holdings except those permitted under the IGBs and closing their demat and trading accounts for other investments. A reverse transition to regular FPI is also possible by making appropriate disclosures.

The capital markets regulator has suggested exempting IGB-FPIs from furnishing investor group details. Disclosure timelines for material changes are proposed to be relaxed to 30 days from the current 7 days only for IGB-FPIs.

The periodicity of know-your-customer (KYC) reviews for such FPIs is also proposed to be aligned with those prescribed by the Reserve Bank of India (RBI). The central bank requires KYC updates once every 2, 8, or 10 years based on the investor’s risk category, while SEBI mandates an annual or triennial review.

SEBI has also proposed allowing non-resident Indians (NRIs), overseas citizens of India (OCIs), and resident Indian individuals (RIs) to invest in IGBs-FPI’s corpus without any restriction, except some on RIs. Currently, NRI/OCI/RI contributions are limited to 25 per cent per investor and 50 per cent in aggregate for any.

Published on May 13, 2025