The Reserve Bank of India ('RBI'), by way of a Circular dated May 8, 2025, has introduced the following amendments, with immediate effect, to the regime governing investments by Foreign Portfolio Investors ('FPIs') in corporate debt securities under the general investment route:
i. Removal of Short-term Investment Limit
Previously, an FPI's investments in short term corporate debt securities (i.e., corporate debt securities with a residual maturity of up to one year) on an end-of-day basis, was restricted to a maximum of 30% of its total corporate debt investments. This restriction has now been removed.
ii. Removal of Concentration Limit
Previously, an FPI and its related FPIs were restricted collectively from investing: (a) in the case of long-term FPIs, in more than 15% of the prevailing investment limit for corporate debt securities; and (b) in the case of other FPIs, in more than 10% of the prevailing investment limit for corporate debt securities. This restriction has now been removed.
Key Takeaways
The removal of short-term investment limit and concentration limit is expected to make the Indian corporate debt market more attractive and liquid for foreign investors.
With the removal of the 30% cap on short-term investment in corporate debt securities, FPIs now have greater flexibility in managing their debt portfolios, particularly in response to market conditions and liquidity needs. Similarly, with the removal of the concentration limit, FPIs can now invest a larger share of their capital in specific corporate debt securities and larger corporate debt issuances that were previously restricted. However, FPIs should be mindful of other existing regulations, such as minimum maturity requirements and issue-wise limit, which continue to apply under the general investment route.
Originally published 19 May 2025
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