Foreign Portfolio Investment: FII to FPI Transition & Debt Limits

Foreign portfolio investors hold roughly $700 billion in Indian equities and $30 billion in Indian debt — numbers governed by a regulatory framework that began in 2000 with a single FEMA notification setting a 10% per-entity cap and a 24% aggregate cap on FII holdings in any Indian company. Over 115 circulars across 25 years, that framework evolved from a rigid FII/sub-account system with hard equity-debt ratios into a unified FPI regime with separate debt limit architecture, a Voluntary Retention Route for committed investors, and Rupee-denominated bond issuance offshore.

See also: Foreign Exchange Regulation in India — The Complete Timeline

For the narrative behind FPI caps, the FII-to-FPI transition, and why debt limits exist — see What Foreign Investors Can and Cannot Buy.

The Foundation: FEMA 20/2000-RB

FEMA 20/2000-RB (Foreign Exchange Management (Transfer or issue of) — 72 downstream references, the most-referenced FPI document — established the basic framework.

Single-Entity and Aggregate Caps

"The total holding by each FII/SEBI approved sub-account of FII shall not exceed 10 per cent of the total paid-up equity capital or 10 per cent of the paid-up value of each series of convertible debentures issued by an Indian company and the total holdings of all FIIs/sub-accounts of FIIs put together shall not exceed 24 per cent of paid-up equity capital." (RBI_174, Schedule 2, para 1(4))

The 24% aggregate could be raised — but only through a double approval:

"The limit of 24 per cent may be increased to 40 per cent by the Indian company concerned by passing a resolution by its Board of Directors followed by passing of a special resolution to that effect by its General Body." Foreign Exchange Management (Transfer or issue of security b...

Sub-Account Limits

"Investments shall not exceed 5 per cent of the total paid-up equity capital or 5 per cent of the paid-up value of each series of convertible debentures issued by an Indian company." (RBI_174, Schedule 2, para 4(3))

The 70:30 Equity-Debt Ratio

"The FII shall restrict allocation of its total investment between equity and debt instruments (including dated Government Securities and Treasury Bills) in the ratio of 70:30." (RBI_174, Schedule 5)

If an FII wanted to invest 100% in debt, it had to create a dedicated fund: "If the FII desires to invest upto 100 per cent in dated Government Securities including Treasury Bills, non-convertible debentures/bonds, it shall form a 100% debt fund and get such fund registered with SEBI."

The FII-to-FPI Transition

The SEBI (Foreign Portfolio Investors) Regulations, 2014 replaced the FII/sub-account system with a unified three-category FPI classification. This simplified registration and reporting but left the FEMA infrastructure largely intact — the same underlying FEMA 20 notification (as amended) continued to govern the transfer and issue of securities.

Debt Limits and Instruments

The Debt Instruments Regulations

FEMA 396/2019-RB (Foreign Exchange Management (Debt Instruments) Reg) (37 downstream refs, amended through October 2025) now governs FPI debt investment. The permitted instrument list:

"An FPI may purchase: dated Government securities/treasury bills; non-convertible debentures/bonds issued by an Indian company; commercial papers; units of domestic mutual funds or ETFs which invest less than or equal to 50 percent in equity; Security Receipts issued by Asset Reconstruction Companies; debt instruments issued by banks eligible for inclusion in regulatory capital; Credit enhanced bonds; Municipal Bonds; debt securities issued by InvITs and REITs." (FEMA 396 — FPI Debt Investment, Schedule 1)

NRIs get a different deal — no aggregate limit:

"A Non-resident Indian or an Overseas Citizen of India may, without limit, purchase Government dated securities or treasury bills or units of domestic mutual funds or ETFs which invest less than or equal to 50 percent in equity; Bonds issued by a Public Sector Undertaking; Bonds issued by Infrastructure Debt Funds." (FEMA 396 — NRI Debt Investment)

Corporate Debt Limit

FPI Corporate Debt Limit and Masala Bonds RBI/2015-16/372 (20 downstream refs, April 13, 2016) fixed the aggregate FPI corporate debt limit in rupee terms:

"The current limit of USD 51 billion for foreign investment in corporate debt has been fixed in Rupee terms at Rs. 2443.23 billion." (FPI Corporate Debt Limit Circular)

Rupee-Denominated Bonds (Masala Bonds)

The same circular enabled offshore rupee bond issuance within the corporate debt limit:

"Issuance of Rupee denominated bonds overseas will be within this aggregate limit of foreign investment in corporate debt." Issuance of Rupee denominated bonds overseas

Per-entity annual cap: "The maximum amount which can be borrowed by an entity in a financial year under the automatic route by issuance of these bonds will be Rs. 50 billion."

Minimum maturity: "Reduced to three years in order to align with the maturity prescription regarding foreign investment in corporate bonds through the FPI route."

Eligible jurisdictions — the FATF/IOSCO filter: "The bonds can only be issued in a country and subscribed by a resident of a country that is a member of FATF or a member of a FATF-Style Regional Body; and whose securities market regulator is a signatory to IOSCO's Multilateral Memorandum of Understanding."

The 2018 Debt Framework Review

FPI Debt Limit Framework Review RBI/2017-18/199 (20 downstream refs, June 15, 2018, updated through February 2021) restructured FPI debt limits with granular controls:

Government Securities

"FPIs are permitted to invest in Central Government securities, including Treasury Bills, and State Development Loans without any minimum residual maturity requirement, subject to the condition that short-term investments by an FPI under either category shall not exceed 30% of the total investment of that FPI in that category." Investment by Foreign Portfolio Investors (FPI) in Debt - Re...

Security-wise cap: "The cap on aggregate FPI investments in any Central Government security stands revised to 30% of the outstanding stock of that security."

Corporate Bonds

"FPIs are permitted to invest in corporate bonds with minimum residual maturity of above one year, subject to the condition that short-term investments in corporate bonds by an FPI shall not exceed 30% of the total investment of that FPI in corporate bonds." Investment by Foreign Portfolio Investors (FPI) in Debt - Re...

Single-issue cap: "Investment by any FPI, including investments by related FPIs, shall not exceed 50% of any issue of a corporate bond."

Concentration Limits

• Long-term FPIs: 15% of prevailing investment limit for the category
• Other FPIs: 10% of prevailing investment limit

Voluntary Retention Route (VRR)

The VRR was introduced to attract long-term committed FPI capital into Indian debt, offering regulatory relaxations in exchange for a minimum retention period. The RBI announced the scheme in October 2018, signalling its intent to deepen foreign participation in Indian debt markets beyond the general investment limits — see RBI introduces the Voluntary Retention Route for FPIs (PR_46444).

Overall cap: "Investment under this route shall be capped at Rs. 1,50,000 crore."

Minimum retention: "Three years, or as decided by RBI for each allotment."

Minimum investment during retention: "75% of the committed portfolio size."

Investment timeline: "Successful allottees shall invest at least 75% of their CPS within three months from the date of allotment."

Concentration limit: "No FPI (including related FPIs) shall be allotted investment limit greater than 50% of the amount offered for each allotment."

Repo access: "FPIs investing through the Route will be eligible to participate in repos, provided that the amount borrowed or lent under repo shall not exceed 10% of their investment under VRR."

The key trade-off — exemptions from general limits: "Investments made through the Route shall not be subject to any minimum residual maturity requirement, concentration limit or single/group investor-wise limits applicable to corporate bonds."

Exit options at the end of retention: liquidate and exit, shift to General Investment Limit (subject to availability), or hold to maturity.

Key Thresholds

Last updated: April 2026

For the full narrative, see What Foreign Investors Can and Cannot Buy.