Unified Investment Limits and Enhanced Exit Flexibility for FPIs

Manisha Ghosh, Senior Executive | finserv@vinodkothari.com

Investment limits under Voluntary retention route (Rs. 2,50,000 crore) for investment in corporate bonds and G-secs have been merged and made a part of the limit assigned for regular investments by FPIs under General Route (15%, 2% and 6% of outstanding stock of Corporate debt securities, State Government securities and Central Government respectively); as a result, FPIs that commit to keep funds for at least 3 years may escape the restrictions applicable in case of corporate bonds relating to minimum residual maturity requirement and issue-wise limits on single FPI (not exceeding 50% of any issue). This introduces significant scope for those FPIs that are sure of staying invested in India for a long term, avoiding opportunism while granting them significant operational flexibility.

The Indian market has witnessed a sharp and sustained decline in FPI investments over the past few years, reflecting a clear shift toward net outflows. The data reflects a structural decline in FPI investments over the period, transitioning from strong inflows in 2020 to persistent net withdrawals from 2022 onwards. The brief stabilization in 2024 appears temporary rather than a trend reversal, suggesting continued caution or reallocation by FPIs in recent financial years. 

Pursuant to the Statement on Developmental and Regulatory Policies announced as a part of the Bi-monthly Monetary Policy Statement for 2025-26 dated February 06, 2026, RBI has introduced amendments through notification Voluntary Retention Route – Imparting predictability and increasing ease of doing business (‘Notification’) to streamline the VRR framework by aligning it with the General Route for FPI investments and enhancing exit flexibility under the Master Direction – Reserve Bank of India (Non-resident Investment in Debt Instruments) Directions, 2025 (‘Directions’). 

VRR as a concept

RBI, to motivate long term investments in Indian debt markets, launched a new channel of investment for FPIs on March 01, 2019, free from the macro-prudential and other regulatory norms applicable to FPI investment in debt markets and providing operational flexibility to manage investments by FPIs. Under this route, FPIs voluntarily commit to 75% of their Committed Portfolio Size (‘CPS’) for a minimum retention period of at least 3 years. Refer our article here for more details:

• Investment Limit – ₹ 2,50,000 Crore
• Eligible investor – FPI registered with SEBI
• Investment in addition to the General Investment Limit (subsumed under General Route now) 
• Invest at least 75% of their CPS within 3 months from the date of allotment of limit
• Minimum retention period: 3 years
• Hold minimum CPS for the entire committed period, with an option to transfer them to another FPI for the remaining in case they wanted to exit prior to completion.

What are the implications? 

1. Merging of investment limits: As on date, about 85% of the limit available under the General route (₹ 7,55,819 crore in case of corporate bonds) stands unutilised as opposed to the VRR limit of ₹ 250000 crore, 80% of which has already been exhausted. The amendment makes the entire unutilised limit available for FPIs opting for VRR.

Current quantum of investment by FPIs (taken from NSDL) (INR Cr)

2. Option to liquidate beyond the minimum retention period: Earlier, FPIs that committed for a higher minimum retention period were required to hold investments for the entire committed period, with an option to transfer them to another FPI for the remaining period in case they wanted to exit prior to completion. Pursuant to the amendment FPIs may now partially or fully liquidate the investment after completion of the minimum retention period of 3 years.