Foreign portfolio invest limit: RBI separates interest rate futures from G-Secs

The Reserve Bank of India has separated the investment limits of foreign portfolio investments (FPI) in interest rate futures (IRF) by allocating a separate limit of Rs 5,000 crore. The limit aggregates investments across all IRF instruments.

The RBI move seeks to facilitate market development and ensure that access of FPIs to IRFs remains uninterrupted, 

Henceforth, the Rs 3,01,500 crore limit will be exclusively available for FPI investments in Government Securities (G-Secs), the central bank said. 

Present scenario

Currently, the FPI limit is fungible between investments in interest rate futures and investments in G-Secs within the overall FPI limits of G-Secs worth Rs 3,01,500 crore. 

However, FPIs are not allowed to buy interest rate futures if the G-Sec limit utilisation touches 90 per cent of Rs 301500 crore.

Interest rate futures are derivative instruments used to hedge interest rate risks. 

Short positions

FPIs cannot create short positions (gross sales) which are in excess of its consolidated long positions (gross G-Sec purchases +gross IRF purchases) at any point in time, the RBI notification said.

Securities market regulator Securities and Exchange Board of India (SEBI) will issue detailed operational guidelines on IRF, RBI said.