India is opening its equity and government securities markets to a wider pool of foreign investors by extending the Portfolio Investment Scheme beyond NRIs and OCIs, relaxing caps, and trimming compliance and tax frictions for Foreign Portfolio Investors (FPIs).
Policy shift at a glance
In the Union Budget FY2026–27, the Finance Ministry announced that individual Persons Resident Outside India (PROIs)—not just NRIs/OCIs—can now invest in listed Indian equities under the Portfolio Investment Scheme (PIS), with the per-investor cap doubled to 10% and the aggregate cap raised to 24% from 10%. To operationalise this, the Department of Economic Affairs is notifying the Foreign Exchange Management (Non-Debt Instruments) (Third Amendment) Rules, 2026, which leverage existing NRI/OCI onboarding infrastructure to simplify entry for a broader set of individual foreign investors.
Alongside equity market access, the government has recalibrated FPI participation in government securities (G‑Secs): it expanded the Fully Accessible Route (FAR) to include new issuances in 15‑, 30‑ and 40‑year tenors and eligible Sovereign Green Bonds, and removed three constraints under the General Route—short‑term investment limit, concentration limit, and security‑wise limit—while retaining the overall ceilings of 6% for central G‑Secs and 2% for state government securities. The sub‑limits for “general” and “long‑term” G‑Sec holdings are being merged into single limits to reduce operational complexity.
On taxation, the regime has been rationalised to improve competitiveness: interest and capital gains earned by FPIs on G‑Sec investments are exempt from income tax for income arising on or after 1 April 2026, aligning India more closely with peer jurisdictions and targeting durable, long‑term capital from pension funds, insurers and sovereign wealth funds. A parallel exemption has been extended to the Bank for International Settlements (BIS) for its G‑Sec interest and capital gains.
Why “beyond NRIs/OCIs” matters
Historically, direct PIS access for individuals resident outside India was largely limited to NRIs and OCIs, creating a narrow funnel for retail‑style foreign participation in Indian equities. By extending PIS eligibility to all individual PROIs and raising limits, the framework aims to mobilise a broader, potentially more stable base of foreign capital without requiring institutional FPI registration, while still using custodian and authorised dealer (AD) bank channels already familiar to regulators.
The Reserve Bank of India’s June 2026 circular under FEMA’s Non‑Debt Instruments Rules underscores this intent: it explicitly permits all individual investors resident outside India to invest in equity instruments of listed companies, enables AD Category‑I banks to open repatriable INR accounts for such investors, and aligns reporting, monitoring and reclassification norms with the existing FPI framework applicable to NRIs/OCIs. This harmonisation reduces ambiguity for banks and depositories and lowers onboarding friction for new investor cohorts.
G‑Sec reforms: depth, yield curve and long‑term flows
The G‑Sec package is designed to deepen India’s benchmark curve and attract “patient” capital. Expanding FAR to longer‑dated issuances and eligible Sovereign Green Bonds provides clearer, more liquid reference points for pricing and risk management, while the removal of short‑term, concentration and security‑wise limits under the General Route reduces micromanagement of portfolio construction. Retaining the 6% (central) and 2% (state) overall ceilings preserves macro‑prudential guardrails even as the internal architecture is simplified.
Tax exemption on interest and capital gains further strengthens the value proposition for long‑horizon investors who prioritise predictable after‑tax returns and low turnover. The policy note explicitly links these measures to attracting pension funds, insurance companies and sovereign wealth funds, which typically seek stable, policy‑anchored fixed‑income allocation avenues.
FPI operational ease and market context
The reforms sit within a broader push to reduce operational drag for FPIs. Separately, SEBI has consulted on allowing netting of funds for same‑day cash market transactions by FPIs—a change that would lower funding costs and ease liquidity pressures during index rebalancing episodes, though it does not permit intra‑day squaring‑off. In parallel, the 2026 Budget increased Securities Transaction Tax on derivatives (futures to 0.05%, options premium and exercise to 0.15%) and treated brokerage/intermediary services to FPIs as exports to remove 18% GST, trimming transaction costs for cross‑border participants.
These steps follow incremental adjustments to FPI debt limits in 2026–27, where the RBI kept percentage caps unchanged (6% central G‑Secs, 2% state, 15% corporate bonds) but allowed absolute limits to rise with outstanding stock, while syncing voluntary retention route limits with the general route from 1 April 2026. The cumulative direction is clear: simplify access, widen the investor set, and reduce frictions that can deter steady inflows.
Compliance architecture and guardrails
The core regulatory skeleton remains intact: SEBI governs FPI registration and conduct under the 2019 regulations; RBI oversees foreign exchange and debt limits; and the Income‑Tax Act frames taxation, now with the new G‑Sec exemption. The 10% threshold for reclassification from FPI to FDI continues to act as a control point—if an FPI or its investor group crosses 10% of a listed company’s paid‑up equity, the excess is treated as foreign direct investment with its own sectoral rules. Likewise, concentration scrutiny persists for large FPIs, with raised disclosure thresholds (to INR 50,000 crore) and a 50% single‑group concentration test to deter circumvention of public shareholding norms.
For individual PROIs entering via PIS, the regime will mirror existing NRI/OCI compliance pathways, including custodian/AD bank reporting and reclassification triggers if limits are breached, helping maintain market integrity while scaling access.