What changed
RBI has allowed FPIs to invest in debt securities issued by Infrastructure Investment Trusts (InvITs) and Real Estate Investment Trusts (REITs). This investment can be made under the Medium-Term Framework (MTF) or the Voluntary Retention Route (VRR). The change was notified via amendments to the Foreign Exchange Management (Debt Instruments) Regulations, 2019 on October 21, 2021.
What it means for you
Banks and AD Category-I entities must now facilitate FPI investments in InvIT and REIT debt securities within existing MTF and VRR limits and conditions. This opens a new avenue for foreign capital into infrastructure and real estate debt markets, potentially increasing demand for such instruments. Lenders should update their compliance and reporting systems to handle these new investment types.
What you must do
- Update internal systems to recognize InvIT and REIT debt securities as eligible for FPI investment under MTF and VRR.
- Inform customers and constituents about the new investment option and applicable limits.
- Ensure compliance with existing MTF and VRR terms and conditions for these investments.
- Monitor FPI investment limits under MTF and VRR to avoid breaches.
Who it affects
AD Category-I banks, Foreign Portfolio Investors (FPIs), Infrastructure Investment Trusts (InvITs), Real Estate Investment Trusts (REITs)
Can FPIs invest in InvIT and REIT debt under any route?
Yes, FPIs can invest in debt securities issued by InvITs and REITs under the Medium-Term Framework (MTF) or the Voluntary Retention Route (VRR), subject to the limits and conditions of those routes.
When did this change become effective?
The amendments to the FEMA (Debt Instruments) Regulations, 2019 enabling this were notified on October 21, 2021, and the circular was issued on November 8, 2021.
Do these investments count against existing FPI debt limits?
Yes, such investments are reckoned within the existing limits for FPI investments in debt securities under the MTF and VRR frameworks.