Explained: Fully Accessible Route (FAR)

Reading time: 8-10 minutes.

The Reserve Bank of India in consultation with the Government of India has introduced a new channel of investment for the Non-Residents of India in specified government securities, called the Fully Accessible Routes (FAR). So as to operationalize the intent articulated within the Union budget, where Nirmala Sitharaman, the Finance Minister, said that certain specified securities shall be opened fully to the foreign investors, RBI introduced this channel opening up the investment opportunities for the foreign investors without any ceiling or restrictions.

Under this scheme, the eligible investors are not subject to any ceilings for investing in specified government securities (G-secs). No foreign portfolio limits shall be applicable to the special securities till the time of their maturity under this scheme. The scheme shall operate with the two existing schemes – Voluntary Retention Route and the Medium-Term Framework.

India is a developing nation and has always focused on growing in every aspect. Providing the foreigners and the non-residents with an open route for investment will be advantageous to both, the country as well as the investors in many ways.

Significance of this development

  • Inclusion in the Global Bond Indices – With the introduction of Fully Accessible Route for the foreign investors, Indian G-secs are now listed in the Global Bond Indices as the country tends to attract access cheap liquidity in the overseas market.
  • Inflow of Stable Foreign Investment – Removal of the restrictions on the G-secs would further facilitate the inflow of stable foreign investment in Indian bonds. It will open government securities fully for foreign investors to channelize their money in Indian G-secs.
  • This will also help the country to attract large funds from major global investors which includes the pension fund. Furthermore, this will also facilitate the non-residents to access Indian G-secs with ease.
  • Equal Investment Opportunities – The central bank said that all the issuances of G-secs of 5-year, 10-year and 30-year tenors from the financial year 2021 will be eligible for investment as ‘specified securities’. This tends to open up equal investment opportunities for the residents as well as the non-residents as the same specified G-secs are available to all. 
  • At the time of the nationwide lockdown due to the outbreak of coronavirus, the Indian Economy is facing a serious setback. “In this unprecedented situation, the RBI and the Finance Ministry are working together to support the financial systems to whatever extent possible,” said Paresh Nayar, the head of fixed income and forex at First Rand Bank.
  • In addition to this, the scheme shall operate along with the two existing schemes namely-

(1)    Voluntary Retention Route (VRR) – This is a scheme which encourages the Foreign Portfolio Investors (FPI) to undertake long-term investments in Indian debt markets. Under the VRR, the eligible investors are subject to various limitations with respect to the investment limit and the retention period of the securities. However, with the recent amendment, VRR was made much more flexible by raising these limits.

(2)    Medium – Term Framework (MTF) – This scheme is similar to the VRR as it also imposes restrictions and ceilings on the investors.

Salient features of this scheme

  • Eligible Investor: For the purpose of defining an ‘eligible investor’ for this scheme, reference shall be made to Section 2 (w) of the Foreign Exchange Management Act, 1999. Under the abovementioned section, “a person resident outside India” means a person who is not a resident in India. Therefore, this route is open for all the foreign investors as well as residents of the country.
  • Specified Securities: Specified Securities shall mean the Government Securities as periodically notified by the Central Bank for investment under this Route. The RBI also said that all new issuances of G-secs of 5, 10 and 30-year tenor shall fall under the category of “specified security”.
  • Investment Limit: The eligible investors shall not be subject to any quantitative limit on investments in specified securities. The investments made under FAR shall not be subject to any restrictions specified in Section 4 sub-clause (b), (c) and (e) of the Investment by Foreign Portfolio Investors (FPI) in Debt. These clauses lay down the restrictions on foreign portfolio investors. Sub-clause (b) of Section 4 specifies the minimum residual maturity requirement, (c) states the security-wise limit and (e) specifies the concentration limit for the securities, otherwise. Securities under FAR are not subject to any of these limits, as mentioned by the RBI.
  • Treatment of Existing Investment in Specified Securities: Existing investments by eligible investors in specified securities shall be reckoned under the Fully Accessible Route.
  • Process for Investment and Reporting:

1.   Foreign Portfolio Investors (FPIs), Non-Resident Indians (NRIs), Overseas Citizens of India (OCIs) and other entities permitted to invest in Government Securities under the Debt Regulations can invest under this route as hitherto under existing arrangements.

2.   Eligible investors other than those referred above may invest through International Central Securities Depositories. However, the process for such investments shall be intimated by the RBI in due course.

What are securities?

Security is a negotiable, fungible, financial instrument that holds some sort of monetary value such as stock, bond, options contract, mutual fund, etc. The securities which are held for the purpose of investment are referred to as the investment securities.

Securities can be broadly categorized into two different types – Equity securities and Debt Securities. However, there are also Hybrid Securities which combine the elements of two main types of securities.

(i) Equity Security

An equity security represents ownership interest held by investors in an entity (an organization, association or trust). When a business goes to the capital markets and issue securities in the form of publicly-traded stock, it is called equity. When an investor buys such security, he purchases ownership in that company. If the company earns profit, either the investor receives his share in the form of dividend or there is a stock rise in value. Furthermore, if a company decides to wind up, the shareholders are paid only after all the debtors are paid.

(ii) Debt Securities

When a business opts to borrow money to grow, they may avail loans from the banks through which only a specified amount can be availed. Once this option is exhausted, the companies tend to issue debt securities called bonds, in the capital market. When an investor buys a bond, he technically lends the money to the company which makes him a debtor of the company. The money so lent by the company has to be returned fully with interest. Moreover, if the company decides to wind up, it has to pay back such securities on priority.

Investment options for Non-Residents/Foreigners

The demographic location of India, its strong economic growth and stable government has made India an attractive destination for the investors around the globe. There are numerous options for such investors in the country, a few of which are listed below:

(a)    Bonds and Government Securities: Government and corporations often issue bonds in order to raise money. When an investor buys these bonds, he lends money to the issuing entity and becomes a debtor for the entity. Investors are entitled to receive fix returns on such investment. NRIs can invest in G-secs through their NRI/NRO accounts.

(b)   Equity: The Portfolio Investment Scheme by the central bank enables the NRIs to invest in the Indian Stock Market. However, the investors are subject to ceilings and restrictions in such an investment method. The investors need to open a Demat account with a SEBI registered brokerage firm. In furtherance, a trading account with a stockbroking firm and an NRE or NRO account with a bank is required.

(c)    Insurance: Insurance is one of the most preferred investment options for Indians. NRIs can also buy and invest money in insurances in India. With the passage of time, the country has identified the preferences and the needs of the non-residents as well, as a result of which, certain insurances are designed especially for non-residents.

(d)   Mutual Funds: Mutual funds are one of the most flexible investment options for foreigners. Only Indian currency with an NRE/NRO account is the only pre-requisite for an investor to invest in mutual funds in India. There are no limitations to NRIs for investing in mutual funds in India.

Investment options for Indian residents

There are a number of investment options for Indian Investors. Some options are traditionally being used across generations while many have also emerged over time. Some of the popular investment options are listed below:

(a)    Stocks: Stocks, which are commonly referred to as the company’s shares are one of the most popular investment options in India. Buying a company’s share allows you to participate in the company’s growth as a shareholder is the owner of the company. The companies that are publicly listed on the stock exchanges offer stocks and can be bought by any investor.

(b)   Mutual Funds: Mutual Funds have gained popularity as an investment option with the due passage of time. It is an investment vehicle that pools the money of several investors and invests it in a way to earn maximum returns. Different types of mutual funds invest in different securities.

(c)    Fixed Deposits: Fixed deposits, as the name suggests, are for a specific, pre-defined time period. The most attractive features of fixed deposits are that it offers guaranteed returns and capital protection. Moreover, this is a risk-free investment option. These are also called the ‘locked-in’ investment, however, the investors are often allowed to avail loans against them.

(d)   Recurring Deposits: This type of investment is offered by banks and post-offices. A recurring deposit (RD) allows an investor to put in a specific amount every month for a pre-defined period of time. The interest rates are decided by the institution offering it. This also ensures capital protection as well as fixed returns.

(e)    Public Provident Fund: It is a long-term investment vehicle that comes with a lock-in period of 15 years. This is also a tax-saving instrument. The PPF rate is defined by the Government of India each quarter.

(f)    Employee Provident Fund (EPF): This is a retirement-oriented investment scheme that earns a tax break under Section 80C. A part of an employee’s monthly salary is deducted for the EPF and the same amount is matched by the employer. At the time of maturity, the withdrawn corpus from the EPF is entirely tax-free. The government decides the EPF rates every quarter.

(g)   National Pension System (NPS): This is a relatively new tax-saving investment option. Under this, the investors stay locked-in until the time of retirement. This option is not entirely tax-free and a part of it has to be used to purchase an annuity which gives the investor a regular pension.


India is one of the fastest-growing economies in the world and has the largest youth population due to which it has become a major attraction for investors across the globe. However, with the earlier investment options offered to the foreigners/NRIs/OCIs, there were certain restrictions and limitations imposed on them. There was an investment limit and certain limitations with respect to the retention period were imposed. But with the introduction of Fully Accessible Route, the eligible investors can invest in specified securities without any limitation. Indian G-secs are now listed in the Global Bond Indices and has subsequently led to the inflow of stable foreign investment.

During the nationwide lockdown due to the outbreak of coronavirus, this will help to strengthen the country financially. This move of the RBI and Government of India will help the country attract more foreign investment.

Author: Ishita from Symbiosis Law School, Pune.

Editor: Arya Mittal from Hidayatullah National Law University, Raipur.

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