FPI Investment Limit Raised By RBI – Free PDF Download

FDI VS FPI

• When investment is made with an intent of obtaining an ownership stake in a foreign country- FDI.
• In FDI investment is done through transfers of funds, resources, technology etc.
• When the investment is made in the financial assets of a company in foreign country- FPI.
• In FPI investment is done through stock, bonds, etc.

INCREASE IN SHORT TERM INVESTMENT

• According to the current norms,
• Short-term investments by a foreign portfolio investor (FPI) should not exceed 20% of the  total investment of that FPI in DEBT
• The short-term investment limit has now been increased from  20% to 30%
• RBI has also made relaxation in the voluntary retention route (VRR)  for FPI investments in debt.

VOLUNTARY RETENTION ROUTE (VRR)

• In March 2019, The RBI introduced a separate channel, the ‘Voluntary Retention Route’ ,To enable FPIs to invest in debt markets in India.

HOW IT IS BENEFICIAL TO INVESTORS?

• Investments through VRR are free of- Macro-prudential and other regulatory prescriptions
• Applicable to FPI investments in debt markets.

BUT THERE IS ONE CONDITION

• FPIs should voluntarily commit to retain a required minimum percentage of their investments in India for a particular period.
• Currently this period is of 3 years.
• The investment limit under VRR has been increased to ₹1,50,000 crore from the ₹75,000  crore of the earlier scheme, with a minimum  retention period of three years.
• Investment limits will be available on tap and allotted on a first-come, first-  served basis, the RBI said.

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