FII Investment Allocation: 70:30 Debt-Equity Ratio Scrapped
Current · Source: Reserve Bank of India · RBI/2008-09/240 · issued 17 Oct 2008 · ~2 min read
Quick answerRBI has removed the mandatory 70:30 debt-equity investment ratio for FIIs, aligning with SEBI's October 16, 2008 circular. FIIs can now freely allocate between equity and debt, except for security receipts from Asset Reconstruction Companies, which retain their holding limits.
The rule, in the simplest words
FIIs (foreign investors who buy Indian stocks/bonds) no longer have to keep a 70:30 mix of stocks and bonds; they can choose any mix they want.
The old rule that forced FIIs to put 70% in stocks and 30% in bonds is gone, so they can now put all their money in stocks or all in bonds if they like.
But there is still a limit on how much a single FII can own in security receipts (special bonds from companies that buy bad loans) — no more than 10% of each batch, and all FIIs together can't own more than 49% of each batch.
How it plays out — a real example
A forex & trade-finance officer in Indore, Priya, updates her bank's advisory notes after learning the RBI scrapped the 70:30 debt-equity ratio for FIIs. She tells a client, a local FII manager, that he can now freely invest in government bonds without worrying about the old stock-bond mix rule, making it easier to buy more bonds for his fund.
What changed
The RBI has dispensed with the requirement that FIIs maintain a 70:30 ratio between equity and debt investments, as previously mandated under FEMA regulations. This change follows SEBI's removal of similar restrictions in its regulations. The existing caps on FII holdings in security receipts issued by Asset Reconstruction Companies remain unchanged.
What it means for you
Banks and lenders can expect increased FII participation in both equity and debt markets, as the removal of the ratio provides flexibility. This could lead to higher demand for government securities and corporate bonds, potentially lowering yields. However, the continued restrictions on security receipts may limit FII activity in the asset reconstruction space.
What you must do
Update internal systems and advisory notes to reflect the removal of the 70:30 ratio for FII investments.
Inform clients and customers about the new flexibility in FII allocation between equity and debt.
Continue to monitor and enforce the unchanged limits on FII holdings in security receipts issued by Asset Reconstruction Companies.
Does this circular remove all restrictions on FII debt investments?
No, it only removes the 70:30 ratio requirement. The limits on FII holdings in security receipts from Asset Reconstruction Companies (10% per FII, 49% aggregate) remain in place.
Do FIIs still need to register a 100% debt fund with SEBI for full debt investment?
The circular does not address this directly. The SEBI circular of October 16, 2008, which prompted this change, may have its own requirements; banks should refer to SEBI's guidelines for debt fund registration.
When did this circular take effect?
The circular was issued on October 17, 2008, and the changes were effective immediately upon issuance.
📜 Read the original circular — full text as issued by RBI
RBI/2008-09/240
A. P. (DIR Series) Circular No. 25
October 17, 2008
To,
All Authorised Dealer Category –I Banks
Madam / Sir,
Allocation of FII Investment between debt and equity
Attention of Authorised Dealer Category - I (AD Category – I) banks is invited to sub-paragraphs i) & ii) of Paragraph 1 of Schedule 5 to FEMA Notification No.20 dated May 3, 2000, as amended from time to time, in terms of which Foreign Institutional Investors are allowed to purchase, on repatriation basis, dated Government securities/treasury bills, listed non-convertible debentures/bonds, commercial papers issued by an Indian company and units of domestic mutual funds and Security Receipts issued by Asset Reconstruction Companies either directly from the issuer of such securities or through a registered stock broker on a recognized stock exchange in India, provided that :
(i) the FII shall restrict allocation of its total investment between equity and debt instruments (including dated Government Securities and Treasury Bills in the Indian capital market) in the ratio of 70:30;
(ii) if the FII desires to invest up to 100 per cent in dated Government Securities including Treasury Bills, non-convertible debentures/bonds issued by an Indian company, it shall form a 100 per cent debt fund and get such fund registered with SEBI; and
(iii) the total holding by a single FII in each tranche of scheme of Security Receipts shall not exceed 10 per cent of the issue and the total holdings of all FIIs put together shall not exceed 49 per cent of the paid up value of each tranche of scheme of Security Receipts issued by the Asset Reconstruction Companies.
2. In order to accord flexibility to the FIIs to allocate their investments across equity and debt instruments, the Securities and Exchange Board of India (SEBI), in consultation with the Government of India, vide its Circular No IMD/FII & C/33/2007 dated October 16, 2008 has dispensed with the conditions provided in Regulation 15 (2) of the SEBI FII Regulations pertaining to restrictions of 70: 30 ratio of investments in equity and debt, respectively. Accordingly, it has been decided, to dispense with the existing provisions under FEMA Regulations, as mentioned in proviso (i) above. However, the stipulations made in proviso (iii) in respect of FII holdings in security receipts issued by Asset Reconstruction Companies shall continue.
3. AD Category – I banks may bring the contents of this circular to the notice of their constituents and customers concerned.
4. Necessary amendments to the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000 ( Notification No.FEMA.20/2000-RB dated May 3, 2000 ) are being issued separately.
5. The directions contained in this circular have been issued under Sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and is without prejudice to permissions/approvals, if any, required under any other law.
Yours faithfully,
(Salim Gangadharan)
Chief General Manager-in-Charge
Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2008-09/240 · issued 17 Oct 2008. The plain-English explanation above is BankPulse’s own independent summary.
Update internal systems and advisory notes to reflect the removal of the 70:30 ratio for FII investments.
📜 Compliance
Inform clients and customers about the new flexibility in FII allocation between equity and debt.
Continue to monitor and enforce the unchanged limits on FII holdings in security receipts issued by Asset Reconstruction Companies.
Grouped from the action items above — a single circular may involve more than one team.
Worked example & action-note template
Example: if you are an IT/Systems lead at a bank this circular applies to (Authorised Dealer Category – I banks, Foreign Institutional Investors (FIIs), Asset Reconstruction Companies (ARCs)), your first concrete step on “FII Investment Allocation: 70:30 Debt-Equity Ratio Scrapped” is: “Update internal systems and advisory notes to reflect the removal of the 70:30 ratio for FII investments.” (RBI issued this 17 Oct 2008).
Circular: RBI/2008-09/240 -- FII Investment Allocation: 70:30 Debt-Equity Ratio Scrapped
Issued: 17 Oct 2008
Action required: Update internal systems and advisory notes to reflect the removal of the 70:30 ratio for FII investments.
Action required: Inform clients and customers about the new flexibility in FII allocation between equity and debt.
Action required: Continue to monitor and enforce the unchanged limits on FII holdings in security receipts issued by Asset Reconstruction Companies.
Owner: ____________ Target date: ____________
Board/committee approval needed? Y / N
Evidence filed in compliance register on: ____________
Built only from this circular’s own published fields — not legal advice; always confirm against the official RBI source.
💬 Banker Discussion
Discuss this circular with fellow bankers — reply, upvote what helps, report what doesn’t belong. Be professional; no client data. Views are the commenter’s own, not BankPulse’s.
BankPulse Compliance Evidence Pack — generated 05 Aug 2026 · status cross-checked against RBI’s official withdrawal register (refreshed weekly). Official RBI source: https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=4568&Mode=0 — Plain-English summary by BankPulse (bankpulse.ai), reviewed by our expert reviewer, CA Amit Jain. Independent platform, not affiliated with the Reserve Bank of India; is our own plain-English paraphrase, not RBI’s original wording.
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