SEBI eases compliance requirements for FPIs investing in government securities

The Securities and Exchange Board of India (SEBI), vide notification dated August 11, 2025, has introduced amendments to the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2019 (FPI Regulations) with the intention to simplify the compliance requirements for a targeted group of foreign investors.

 Key highlights of the exemptions provided to FPIs investing exclusively in Government securities under the amendment regulations are outlined below:

• Under amended Regulation 4(c) of the FPI Regulations, foreign portfolio investors (FPIs) who invest solely in Government securities (GS-FPIs) (in accordance with applicable SEBI-prescribed conditions) shall be exempt from complying with several eligibility requirements prescribed in Regulation 4(c), subject to conditions as may be specified by SEBI.

• FPIs are required to comply with ownership and control requirements including restrictions that contributions from any individual non-resident Indian (NRI), overseas citizen of India (OCI), or resident Indian (RI) must not exceed 25% of the aggregate corpus of the FPI and that the cumulative contribution from NRIs, OCIs and RIs must not exceed 50% of the overall corpus of the FPI and that NRIs, OCIs and RIs are not permitted to exercise control over the FPI. However, the aforementioned restrictions will not apply to GS-FPIs in terms of the amended provisions.

• Similarly, amendments to Regulation 22 of the FPI Regulations provide that GS-FPIs shall be exempt from certain ongoing compliance, reporting, and operational requirements that apply to other FPIs including but not limited to the following:

• • • disclosures related to changes in control and beneficial ownership held in the FPIs;

• • • intimations to SEBI and the designated depository participants (DDPs): (I) in case where the information and details previously submitted by an FPI are found to be false or misleading (in any material respect); (II) where there is a material change in the information and details of the FPI, including changes in structure, ownership, control or investor group; and (III) in case of any penalty, pending litigation or proceedings, findings of inspections or investigations for which action has been taken or is underway by an overseas regulator against the FPI;

• • • additional disclosures related to beneficiary ownership details of clients as may be required by SEBI or the DDPs or any other enforcement agency to ensure compliance with the Prevention of Money Laundering Act, 2002; and

• • • the requirement that entities registered as FPIs having common ownership of more than 50% or common control shall be treated as part of the same investor group, and the investment limits of all such entities shall be clubbed at the investment limit applicable to a single FPI.

In its circular dated September 10, 2025 (Circular), SEBI has set forth operational aspects in the form of a regulatory framework aimed at easing compliance requirements for GS-FPIs in line with the amendment regulations. The enabling Circular has introduced amendments to the master circular for Foreign Portfolio Investors, Designated Depository Participants and Eligible Foreign Investors dated May 30, 2024. Some of the key aspects of the Circular include:

• GS-FPIs investing under the fully accessible route (FAR) shall now be exempt from providing investor-group details at the time of registration.

• GS-FPIs shall no longer be required to submit ‘no-change’ declarations or report non-material changes at the time of their three-year renewal – they only need to pay the specified renewal fee to the concerned DDP. Any material changes (both Type I and Type II) must be reported within 30 days of such change, along with supporting documents, ensuring that SEBI retains oversight of significant changes.

• It is further clarified that resident Indian individuals may contribute to GS-FPIs only via Reserve Bank of India’s Liberalised Remittance Scheme (LRS). Such investments are allowed in global funds where the aggregate exposure to Indian securities does not exceed 50%.

• The Circular also introduces streamlined procedures for FPIs to transition between regular and GS-FPI categories, requiring appropriate declarations and disclosures to be made to DDPs. Custodians and DDPs must ensure that GS-FPIs hold only permitted Government securities in their demat accounts. For GS-FPIs, the periodicity of Know Your Client (KYC) reviews will be aligned with the KYC periodicity set by their respective banks for account maintenance.

The regulatory exemptions and operational relaxations for GS-FPIs come into effect from February 2026. Depositories and intermediaries are directed to make system changes accordingly.

Conclusion:

By providing targeted exemptions and clarifications, SEBI demonstrates its continued commitment to enhance the attractiveness of the Indian securities market—particularly Government securities—for foreign investors, while balancing regulatory oversight.