The RBI and the Securities and Exchange Board of India (the “SEBI”) have recently notified two (2) changes in regulations relating to investments by foreign portfolio investors (“FPI”) following the bi-monthly monetary policy statement released on February 3, 2015.
Under the current regulations applicable to foreign portfolio investments, FPIs are permitted to invest in government securities. The RBI and the SEBI have now permitted FPIs to invest in government securities from the coupon interest received by FPIs from their existing investments in government securities. Also, such additional investments will not be considered in calculating the applicable limit for FPI investments in government securities, which currently stands at US$30,000,000,000 (United States Dollars Thirty Billion). Such investments will be required to be made within five (5) working days from the date of receipt of the coupon interest. This change is aimed at increasing inflow of monies from outside India.
Secondly, the RBI and the SEBI have notified that all future investments by FPIs in corporate bonds will have to be made in corporate bonds having a minimum maturity of three (3) years. Further, all future investments against the limits vacated (when the current investments end either through sale or redemption) shall have to be made in corporate bonds with a minimum residual maturity of three (3) years. However, there is no lock-in period and FPIs are free to sell the securities to domestic investors. Lastly, FPIs will no longer be permitted to make any further investments in liquid and money market mutual fund schemes. This move indicates that the RBI is looking to attract long term investors.
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