- By SteadyAsset
- 23 Sep, 2025
Foreign portfolio investment (FPI) in Indian bonds is entering a new phase in 2025. With the RBI and SEBI easing rules and India moving closer to global index inclusion, the bond market is opening up like never before. The result – more room for foreign capital and greater market stability.
Regulatory Changes: RBI and SEBI’s 2025 Initiatives
RBI’s measures
In May 2025, the Reserve Bank of India removed the short-term investment limit and concentration limit for FPIs in corporate debt. This step gives investors more flexibility in managing their bond holdings and ensures smoother participation in the corporate debt market.
At the same time, the RBI kept the overall investment ceilings unchanged for FY 2025–26:
- ✅ 6% of outstanding government securities
- ✅ 2% of state loans
- ✅ 15% of corporate bonds
This maintains stability while leaving adequate space for future inflows.
SEBI’s initiatives
SEBI has introduced a simplified framework for FPIs investing only in government bonds, called the IGB-FPI category. Approved in June 2025, it eases KYC requirements, extends reporting timelines, and provides more flexibility for participation from NRIs and OCIs. These measures reduce compliance processes and are expected to support consistent foreign investment in government securities.
Market Trends: FPI Flows and Yields
Foreign investment in Indian corporate bonds has picked up sharply in 2025. In May, FPIs brought in around ₹20,996 crore, the highest monthly inflow in nearly a decade. This included the Shapoorji Pallonji Group’s corporate bond issuance offering a 19.75% annual yield, which drew strong overseas interest.
- ✅ After a brief dip in April, when FPIs sold about ₹8,879 crore, flows turned positive again in May as domestic rate cuts and attractive yields improved sentiment.
- ✅ Meanwhile, the yield gap between Indian and US 10-year government bonds has narrowed to about 204 basis points in mid-2025. While a smaller gap can slow foreign inflows, the recent rebound shows that India’s higher yields continue to appeal to investors.
Despite the surge, FPIs have used only about 16.7% of their permitted corporate bond limits (₹1.28 trillion used out of around ₹6.35 trillion). This shows there is still significant headroom for more foreign participation in the Indian bond market.
