FIIs limit for Corporate Bonds Raised to $40 billion

Union Finance Minister, Shri Pranab Mukherjee today announced in his Budget Speech that discussions are underway to further liberalize the Foreign Direct Investment (FDI) policy. All prior regulations and guidelines have earlier been consolidated into one comprehensive document in order to make FDI policy more user friendly. This is reviewed every six months, said the Finance Minister. The last review was released in September 2010.

The Security and Exchange Board of India (SEBI) registered mutual funds would be permitted to accept subscriptions from foreign investors to meet the KYC requirements for equity schemes. This would liberalize the portfolio investment route and would enable Indian mutual funds to have direct access to foreign investors. The new policy would widen the class of foreign investors in Indian equity market, which had hitherto been restricted to only Foreign Institutional Investors (FIIs), sub-accounts registered with SEBI and NRIs.

The Union Budget 2011-12 also proposes to raise the FII limit for investment in corporate bonds to enhance the flow of funds to the infrastructure sector. Shri Mukherjee said that the limit for investment in corporate bonds, with residual maturity of over five years issued by companies in infrastructure sector is being raised by US $20 billion which would now be US $25 billion. This would raise the total limit available to FIIs for investment in corporate bonds to US $40 billion. Since most of the infrastructure companies are organized in the form of Special Purpose Vehicles (SPVs), FIIs would also be permitted to invest in unlisted bonds with a minimum lock-in period of three years. However, the FIIs would be allowed to trade amongst themselves during the lock-in period.

Source : Equity Bulls

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