SEBI Eases Ownership and Compliance Requirements for Government Securities-Only FPIs [Read Notification]

The changes grant targeted relaxations in ownership limits and compliance obligations for Foreign Portfolio Investors (FPIs) that invest exclusively in Government Securities and follow conditions specified by SEBI.

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The amendment will take effect 180 days from the date of publication in the Official Gazette, making the operational start date around February 2026.

Key Change 1 – Relaxation of Regulation 4(c) Ownership Restrictions

Under the original 2019 regulations, Regulation 4(c) imposed limits on the participation of Non-Resident Indians (NRIs), Overseas Citizens of India (OCIs), and resident Indian individuals in an FPI’s corpus:

1. Clause (i): A single NRI/OCI/resident Indian individual could not contribute more than 25% of the corpus.
2. Clause (ii): The combined contribution of all such persons could not exceed 50% of the corpus.
3. Clause (iv): NRIs/OCIs/resident Indian individuals could not have control of the FPI.

The new amendment adds a proviso stating that these three restrictions (i, ii, and iv) will not apply to FPIs that invest only in Government Securities in accordance with SEBI’s conditions. This means ownership caps and control restrictions for these FPIs are removed, making it easier for such investors to participate.

Key Change 2 – Relaxation of Regulation 22 Compliance Obligations

Regulation 22 of the 2019 framework lays down general obligations and responsibilities for FPIs. The notification exempts Government Securities–only FPIs from the following:

• Reg. 22(1): Multiple compliance duties, including keeping SEBI/DDPs informed about changes in ownership, structure, penalties, or litigation, and complying with various operational conditions.
• Reg. 22(3): Grouping rules that treat FPIs with common ownership (>50%) or common control as one entity for investment limit purposes, with strict divestment timelines in case of breach.
• Reg. 22(5): Requirement to report any direct or indirect change in structure, ownership, or control to the DDP.

These relaxations remove substantial ongoing reporting and investment limit compliance burdens for such FPIs.

About Government Securities (G-Secs)

Government Securities are bonds issued by the Government of India, generally considered among the safest investments due to sovereign backing. They are widely used by long-term, conservative investors and are key instruments in the country’s debt market.

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The exemption applies only to FPIs investing exclusively in Government Securities. Diversification into any other asset class would require the FPI to comply fully with the standard Regulation 4 and Regulation 22 provisions. Anti–money laundering norms, FATF standards, and other core financial compliance obligations remain in place.

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