RBI & SEBI remove cap on debt-equity investment ratio for FIIs


Foreign Institutional Investors are allowed to purchase, on repatriation basis, dated Government securities/treasury bills, listed non-convertible debentures/bonds, commercial papers issued by an Indian company and units of domestic mutual funds and Security Receipts issued by Asset Reconstruction Companies either directly from the issuer of such securities or through a registered stock broker on a recognized stock exchange in India, provided that :

(i) the FII shall restrict allocation of its total investment between equity and debt instruments (including dated Government Securities and Treasury Bills in the Indian capital market) in the ratio of 70:30;

(ii) if the FII desires to invest up to 100 per cent in dated Government Securities including Treasury Bills, non-convertible debentures/bonds issued by an Indian company, it shall form a 100 per cent debt fund and get such fund registered with SEBI; and

(iii) the total holding by a single FII in each tranche of scheme of Security Receipts shall not exceed 10 per cent of the issue and the total holdings of all FIIs put together shall not exceed 49 per cent of the paid up value of each tranche of scheme of Security Receipts issued by the Asset Reconstruction Companies.

2. In order to accord flexibility to the FIIs to allocate their investments across equity and debt instruments, the Securities and Exchange Board of India (SEBI), vide its Circular of October 16, 2008 has dispensed with the conditions pertaining to restrictions of 70: 30 ratio of investments in equity and debt, respectively.

Accordingly, RBI on October 17, 2008, has decided, to dispense with the existing provisions under FEMA Regulations, as mentioned in proviso (i) above. However, the stipulations made in proviso (iii) in respect of FII holdings in security receipts issued by Asset Reconstruction Companies shall continue.



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