SEBI Proposes Easing Compliance for FPIs Investing in Government Bonds

The Securities and Exchange Board of India (SEBI) has put forward a proposal to ease regulatory requirements for foreign portfolio investors (FPIs) who invest solely in Indian government bonds. This move is strategically timed with the inclusion of Indian government bonds in global indices, such as the JP Morgan Global Emerging Market Bond Index, Bloomberg EM Local Currency Government Index, and the FTSE Russell Emerging Markets Government Bond Index, the latter effective from September 2025.

New Category: IGB-FPIs and Transition Guidelines

Under the proposal, SEBI plans to create a new FPI category known as Indian Government Bond FPIs (IGB-FPIs), covering those investing exclusively through the Voluntary Retention Route (VRR) and Fully Accessible Route (FAR). At the time of registration, FPIs opting for government bonds will be categorised as IGB-FPIs, with existing FPIs given the opportunity to transition to this classification. However, those choosing to transition must divest all holdings outside the permitted bond instruments and close related demat and trading accounts used for other investments.

Additionally, SEBI proposes that IGB-FPIs be exempt from disclosing investor group details, as investments made through VRR and FAR are not subject to security-specific or concentration limits. Disclosure norms concerning material changes and equity investment reporting may also be relaxed since these requirements do not apply to bond-exclusive FPIs.

Broader Participation and Relaxed Compliance

A significant recommendation involves allowing non-resident Indians (NRIs), overseas citizens of India (OCIs), and resident Indians (RIs) to invest in IGB-FPIs without any cap. Presently, their contributions are restricted to 25% per investor and 50% in aggregate within an FPI. If the proposal is accepted, NRIs and OCIs may even exercise control over these specialised bond FPIs.

SEBI also suggests aligning KYC review timelines for IGB-FPIs with the Reserve Bank of India's guidelines, which stipulate reviews every 2, 8 or 10 years based on the investor’s risk profile. Currently, SEBI requires such reviews either annually or every three years.

Read More: SEBI Raises Disclosure Threshold for FPIs to ₹50,000 Crore

Conclusion

SEBI’s proposed framework aims to simplify the investment process for global investors seeking exposure to Indian government bonds. With the bond market gaining international visibility, these regulatory changes are expected to encourage more stable and long-term inflows into India's debt market.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.