SEBI Implements Norms for Easier FPIs Investing In Government Bonds

SEBI just rolled out some investor-friendly reforms aimed at boosting India's government bond market. The move? Making life easier for foreign portfolio investors (FPIs) who only invest in Indian Government Securities (G-Secs). It's part of a broader plan to attract more long-term foreign investment into India, particularly following the country's recent inclusion in major global bond indices.

Simplified KYC and Fewer Paperwork Hassles

If you're a G-Sec-only FPI (or what SEBI calls a GS-FPI), there's good news: your KYC reviews will now follow the Reserve Bank of India's schedule. Translation? Fewer compliance check-ins. SEBI sees these investors as lower risk, so it's loosening the rules a bit.

Additionally, GS-FPIs won't be required to share detailed group-level investor data, as this information is more relevant for equity and corporate bonds rather than government debt. Another big win: if there are changes in your structure, you now have 30 days to inform SEBI instead of just 7.

These changes weren't made in a vacuum. SEBI consulted stakeholders, took input from its FPI Advisory Committee, and refined its proposals after releasing a discussion paper in May.

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A Wider Door for Investors

One of the most significant shifts? SEBI is now letting Resident Indians, NRIs (Non-Resident Indians), and OCIs (Overseas Citizens of India) be part of GS-FPI structures. This is a notable policy change, still under existing remittance rules, but it expands the playing field.

Additionally, the onboarding process is now simplified for both new and existing GS-FPIs. The goal is to make it easier for both Indian and global investors to access the market.

Why Now? Global Index Inclusion Is a Game-Changer

These changes are well-timed. India's government bonds are now part of several major global indices:

• JPMorgan EM Bond Index (since June 2024)
• Bloomberg EM Local Currency Index (starting January 2025)
• FTSE Russell EM Government Bond Index (set for September 2025)

Thanks to this inclusion, passive foreign investment in government bonds under the Fully Accessible Route (FAR) has skyrocketed, reaching over ₹3 lakh crore (~$35 billion) as of March 2025, up from ₹1.74 lakh crore a year before.

More Reforms from SEBI's June Meeting

This isn't a one-off. These bond-market changes are part of a broader reform package SEBI unveiled during its board meeting on June 18. Other key updates include:

• Startup founders can now retain their ESOPs post-IPO, as long as they were granted at least a year prior to the IPO filing.
• Public Sector Undertakings (PSUs) with at least 90% government ownership can now delist using a simpler, fixed-price method, provided the price is 15% above SEBI's floor price.
• More straightforward co-investment rules for Alternative Investment Funds (Category I & II).
• Updates to regulations on REITs, InvITs, QIPs, merchant bankers, and social stock exchanges.
• A special settlement window for National Spot Exchange Ltd. (NSEL) cases.

What This Means for the Market

SEBI Chairman Tuhin Kanta Pandey summed it up: these reforms aim to improve the ease of doing business by aligning rules with the actual risk involved. That means lower compliance for low-risk investments, such as G-Secs, without weakening oversight.

Global investors are responding positively. The smoother KYC process and longer timeframes for reporting changes help reduce paperwork, costs, and complexity. Bloomberg analysts suggest that this could attract more investment through the FAR and the Voluntary Retention Route (VRR).

A Step Toward a Stronger Bond Market

Analysts and government insiders see this as a turning point. The changes support India's broader goal of strengthening its sovereign bond market, making it more liquid and attractive to both global and domestic investors. Credit rating agencies believe the increased access could lead to lower bond yields and more stable government financing.

By allowing NRIs and OCIs to participate, SEBI is also tapping into diaspora capital, which could potentially boost India's domestic savings and reduce the need for short-term financing.

What's Next?

With the FTSE index inclusion scheduled for September 2025 and these reforms now in place, India is setting the stage for a surge of new foreign interest in its G-Secs. The key challenge ahead? Managing these inflows while maintaining a stable and well-regulated market.

In short, SEBI's latest round of changes is more than just red tape-cutting. It's a significant step toward making India's capital markets more global, inclusive, and easier to navigate, particularly for long-term, low-risk investors.