RBI Ease Investment Norms for FPI in Corporate Debt Securities Through the General Route

Foreign Direct Investment serves as the foundation of the economy and is essential for economic development. The Reserve Bank of India (RBI) implements measures to ensure that compliance for foreign investors is managed effectively, avoiding unnecessary difficulties or complications. With this objective, the RBI has relaxed conditions related to investment by Foreign Portfolio Investors in Corporate Debt Securities through the General Route vide Notification No. RBI/2025-26/35 FMRD.FMD.No.01/14.01.006/2025-26 dated May 08, 2025.

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The RBI has liberalised the conditions related to FPI investment in Corporate Securities through the General Route.

1. Current Conditions on Investment in Corporate Debt Securities:

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As per Para 4.4 of the Master Direction – Reserve Bank of India (Non-resident Investment in Debt Instruments) Directions, 2025, the following are the conditions for investment in Corporate debt securities:

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(i) Minimum residual maturity requirement: An FPI may invest only in corporate debt securities with an original/residual maturity of above one year. 

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(ii) An FPI shall not invest in: 

a. corporate debt securities with any optionality clause that is exercisable within a year from the date of investment; 

b. debt mutual fund schemes with maturity or Macaulay duration of the portfolio less than one year;

c. partly paid debt instruments; and 

d. Amortised corporate debt instruments where the duration of the instrument is up to one year. 

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(iii) Short-term investment limit: Investments by an FPI in corporate debt securities with residual maturity up to one year shall not exceed 30% of the total investment of the FPI in corporate debt securities. The short-term investment limit shall apply on investments on an end-of-day basis. 

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(iv) Issue-wise limit: Investment by any FPI, including investments by related FPIs, shall not exceed 50% of any issue of a corporate debt security. 

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(v) Concentration limit: Investment in corporate debt securities by an FPI (including its related FPIs) shall not exceed 15% of the prevailing investment limit for these securities in case of long-term FPIs and 10 per cent of the prevailing investment limit for other FPIs.

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There are various other conditions prescribed under Clause 4.4 of the Master Circular.

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Read Also: Compliances for FDI under FEMA 

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2. Revised Conditions on Investment in Corporate Debt Securities:

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• As per Clause 4.4(iii), FPI can invest in corporate debt securities with residual maturity up to one year. However, such investment shall not exceed 30% of the total investment of the FPI in corporate debt securities. Such a clause intends to make sure that the least funds are invested in debt securities that are maturing within one year.

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• Similarly, as per Clause 4.4(v), Investment in corporate debt securities by an FPI shall not exceed 15% of the prevailing investment limit for these securities in case of long-term FPIs and 10% of the prevailing investment limit for other FPIs.

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• To provide greater ease of investment to FPIs, the RBI has withdrawn the requirement specified in Clause 4.4 (iii) and (v) for investments by FPIs in corporate debt securities.

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• Accordingly, FPI can invest in Short Term Debt Securities beyond 30% of the total investment of FPI. 

3. Implication

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These amendments shall provide flexibility to invest in short-term or long-term debt securities without the need to worry about regulatory caps. The investment intending to invest funds for a shorter period shall now have such a window open. However, the RBI still preferred long-term flows as short-term flows could potentially impact rates and liquidity

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