FPIs likely through ETF routes

Foreign Portfolio investors (FPIs) are permitted by Reserve Bank of India, to invest in Exchange Traded funds (ETF) that invest in Debt instruments.  More fund flows are expected in Bharat Bond ETF as new regulation provides FPIs with a simpler way to invest in high quality papers while helping them diversify exposure.  This is considered to be a positive development.  Further

1. The initial Road shows for Bharat Bond in December last year is said to have provided very good FPI traction and proved to have shown interest in this and subsequent issue.
2. In its debut offer in December the Bharat Bond ETF raised Rs. 12, 400 crore and the money raised from FPI and domestic capital could go upto Rs. 15,000 crore in the next few months.
3. As far as FPI investments are concerned, experts believe that ETF route has got advantage since FPIs would have an internal limit for investing in a single bond of a country that might prevent them from getting additional exposure to high quality papers.
4. Through ETF route FPIs will be able to get exposure to many such papers and simultaneously get diversification too.
5. Also, if FPI wants to diversify, getting 10 different bonds worth a small amount is said to be a tedious process. Also exiting their investments at one go may prove difficult and smooth entry and exit are possible through ETF route.
6. The investment limit for FPIs in Government bonds and Corporate Bonds have been doubled by RBI to Rs. 1.5 lakh crore via Voluntary Retention route (VRR) which was opened in March last year.
7. This route will be free of macro prudential and other regulatory norms applicable to FPI investments in DEBT markets, provided FPIs voluntarily commit themselves to retain the required percentage of their investments in India.
8. The re-issuance of existing Bharat Bond ETF series is expected to be before the launch of second ETF to ensure liquidity in the existing series.