Limit of investment for outstanding corporate bond for Foreign Portfolio Investment in Union Budget 2020-21 has been extended upto
- (a)9%
- (b)10%
- (c)12%
- (d)15%
Correct — D, 15%. In the Union Budget 2020-21 (presented on 1 February 2020), Finance Minister Nirmala Sitharaman proposed raising the limit for Foreign Portfolio Investors (FPIs) in outstanding corporate bonds from 9% to 15% of the outstanding stock of corporate bonds. The Reserve Bank of India gave effect to this on 30 March 2020 for FY2020-21, the aim being to deepen the corporate bond market and draw more foreign debt investment.
- (a)9% — Wrong — 9% was the PREVIOUS ceiling that existed before Budget 2020-21; the Budget raised it, so 9% is the old limit, not the extended one.
- (b)10% — Wrong — 10% was floated in some pre-budget discussion but was not the figure announced; the limit was extended to 15%.
- (c)12% — Wrong — 12% is a distractor between the old (9%) and new (15%) limits; it was never the notified cap.
Foreign Portfolio Investors (FPIs) are overseas investors — funds, institutions and individuals — registered with SEBI who invest in Indian securities, including the debt market. Their investment in Indian corporate bonds is capped as a percentage of the outstanding stock of such bonds. Union Budget 2020-21 raised this cap from 9% to 15% to enlarge the pool of foreign money the corporate bond market can absorb.
This is a specific Budget 2020-21 recall. Fix the change in your memory as a jump '9% to 15%': 9% is the old limit (a common trap), 15% is the extended limit. The RBI operationalised it on 30 March 2020 for FY2020-21.
- Union Budget 2020-21 raised the FPI limit in corporate bonds from 9% to 15% of outstanding stock
- Announced by FM Nirmala Sitharaman on 1 February 2020; implemented by the RBI on 30 March 2020
- Purpose: deepen the corporate bond market and attract more foreign debt investment
- FPIs are SEBI-registered overseas investors in Indian securities, including debt
- Choosing 9% — that is the old limit before Budget 2020-21 raised it
- Confusing the corporate-bond FPI cap with G-Sec limits or the FAR route
UPPSC/UPSC ask this as a Budget-specific figure or as a concept item on FPI limits and the corporate bond market — remember the '9% to 15%' jump in Budget 2020-21.
Which of the following is issued by registered foreign portfolio investors to overseas investors who want to be part of the Indian stock market without registering themselves directly?
- (a) Certificate of Deposit
- (b) Commercial Paper
- (c) Promissory Note
- (d) Participatory Note
Answer(d) Participatory Note
Same actor — Foreign Portfolio Investors; it tests P-Notes issued by FPIs, the very category of investor whose corporate-bond limit this question concerns.
In India, which of the following can trade in Corporate Bonds and Government Securities? 1. Insurance Companies 2. Pension Funds 3. Retail Investors. Select the correct answer using the code given below:
- (a) 1 and 2 only
- (b) 2 and 3 only
- (c) 1 and 3 only
- (d) 1, 2 and 3
Answer(d) 1, 2 and 3
Same instrument — the corporate bond market; it tests who may trade in corporate bonds, the market whose FPI investment cap this Budget question raises to 15%.
- practice — not a real PYQ
The Union Budget 2020-21 raised the FPI investment limit in corporate bonds to
- (a)9% of outstanding stock
- (b)12% of outstanding stock
- (c)15% of outstanding stock
- (d)20% of outstanding stock
Answer(c) 15% of outstanding stock — up from 9%.
- practice — not a real PYQ
Foreign Portfolio Investors (FPIs) in India are registered with and regulated by
- (a)RBI
- (b)SEBI
- (c)IRDAI
- (d)NITI Aayog
Answer(b) SEBI — which registers and regulates FPIs investing in Indian securities.