India eases foreign investment rules for equities and G-secs to draw long-term capital
Synopsis
India has quietly rewritten the rulebook for foreign investors — raising individual PROI equity limits, scrapping three G-sec restrictions, expanding the Fully Accessible Route to 40-year bonds, and exempting FPI interest and capital gains from tax. The package is a direct pitch to pension funds and sovereign wealth funds, the kind of patient capital India has struggled to lock in at scale.
Key Takeaways
Individual PROI equity investment limit raised from 5% to 10% per company; aggregate PROI ceiling raised from 10% to 24% .
PIS route opened to all individual Persons Resident Outside India, previously restricted to NRIs and OCIs.
Fully Accessible Route (FAR) expanded to include 15-, 30-, and 40-year government bond tenors and Sovereign Green Bonds .
Three FPI restrictions on G-sec General Route investments — short-term limit, concentration limit, security-wise limit — to be removed; overall 6% Central / 2% State cap retained.
FPI interest and capital gains on government securities exempted from income tax, effective 1 April 2026 .
Reforms target long-horizon investors including pension funds , insurance companies , and sovereign wealth funds .
The Finance Ministry on Friday, 5 June 2025, announced a comprehensive set of reforms to broaden and simplify foreign investment in Indian equities and government securities, with the stated goal of attracting stable, long-term foreign capital flows into the country. The measures span portfolio investment rules, government bond access, and tax treatment for foreign investors.
Key Changes to Portfolio Investment for Foreign Individuals
Finance and Corporate Affairs Minister Nirmala Sitharaman had, in the Union Budget FY 2026-27, announced that individual Persons Resident Outside India (PROIs) — a category previously excluded — would be permitted to invest in equity instruments of listed Indian companies through the Portfolio Investment Scheme (PIS), a route until now limited to Non-Resident Indians (NRIs) and Overseas Citizens of India (OCIs).
Under the revised framework, the individual investment limit for a PROI will be raised from 5 per cent to 10 per cent in any single company. The aggregate ceiling for all individual PROIs combined will increase from 10 per cent to 24 per cent of a company's equity. To give legal effect to these changes, the Department of Economic Affairs (DEA) is notifying the Foreign Exchange Management (Non-Debt Instruments) (Third Amendment) Rules, 2026.
According to the ministry, the notification will enable more proactive mobilisation of foreign portfolio capital by leveraging existing onboarding systems already in place for NRI and OCI investors. Simplified onboarding and reduced compliance requirements are expected to enhance ease of doing business while drawing a broader base of relatively stable individual foreign investors.
Expanding Access to Government Securities
The government also announced steps to deepen Foreign Portfolio Investor (FPI) participation in government securities. The Fully Accessible Route (FAR) — which allows unrestricted FPI investment in select bonds — will be expanded to include new issuances in tenors of 15, 30, and 40 years, as well as Sovereign Green Bonds in FAR-eligible tenors.
For FPI investments under the General Route, the ministry said it will remove three existing restrictions: the short-term investment limit, the concentration limit, and the security-wise limit for investments in government securities. The overall quantitative cap — 6 per cent of the outstanding stock of Central Government securities and 2 per cent of State Government securities (SGSs) — will be retained.
Tax Exemption for FPI Investments in G-Secs
In a significant fiscal incentive, the government will exempt both interest income and capital gains on FPI investments in government securities from income tax. This exemption is effective from 1 April 2026, and is intended to bring India's offering closer to the terms available in leading international financial markets.
Broader Impact and What to Expect
The ministry stated that these reforms collectively aim to reduce operational complexities, simplify market access, and deliver an investment experience comparable with global financial hubs. The measures are specifically designed to attract long-horizon investors such as pension funds, insurance companies, and sovereign wealth funds — categories of capital considered more stable than short-term speculative flows.
Notably, the reforms also aim to support the development of a smoother yield curve in India's government bond market — a structural gap that has historically deterred deep institutional participation. The broader effect, according to the ministry, will be a boost to overall foreign exchange inflows for the country.
With the DEA notification expected imminently, market participants will be watching for implementation timelines on the expanded FAR tenors and the tax exemption framework, both of which could meaningfully shift India's attractiveness as a destination for global fixed-income portfolios.
Point of View
But the yield curve has remained compressed and FPI participation in long-dated bonds shallow. Scrapping the short-term, concentration, and security-wise limits in one move is the most substantive G-sec liberalisation in recent memory. The tax exemption on FPI interest and capital gains — effective April 2026 — is the real sweetener, and its absence had long been flagged by global fund managers as a deal-breaker. Whether sovereign wealth funds and pension funds actually shift allocations will depend on execution: specifically, how quickly the DEA notification is operationalised and whether onboarding friction is genuinely reduced. The proof will be in the next two quarters of FPI flow data.
NationPress
21 Jul 2026
Frequently Asked Questions
What new rules has India introduced for foreign investment in equities?
India has opened the Portfolio Investment Scheme to all individual Persons Resident Outside India (PROIs), not just NRIs and OCIs. The individual investment limit per company has been raised from 5% to 10%, and the combined ceiling for all PROIs has been increased from 10% to 24%.
What changes have been made to FPI access to government securities?
The Fully Accessible Route has been expanded to cover new bond issuances in 15-, 30-, and 40-year tenors and Sovereign Green Bonds. For the General Route, three restrictions — the short-term investment limit, concentration limit, and security-wise limit — will be removed, while the overall 6% cap on Central Government securities and 2% cap on State Government securities remain.
Will FPIs get a tax break on government bond investments?
Yes. The government will exempt both interest income and capital gains earned by FPIs on government securities from income tax, effective 1 April 2026. This is intended to align India's offering with leading international financial markets.
Who are these reforms primarily aimed at attracting?
The measures are specifically designed to attract long-horizon, stable investors such as pension funds, insurance companies, and sovereign wealth funds. The Finance Ministry has stated these categories of capital are more stable than short-term speculative flows.
What legal mechanism is being used to implement the equity investment changes?
The Department of Economic Affairs is notifying the Foreign Exchange Management (Non-Debt Instruments) (Third Amendment) Rules, 2026 to give legal effect to the expanded PROI equity investment limits under the Portfolio Investment Scheme.
