<h2>RBI Retains FPI Investment Caps for FY27 – Impact on Government Securities Market</h2> <p>The <span class="key-term" data-definition="Reserve Bank of India — India's central banking institution responsible for monetary policy, currency regulation, and financial stability (GS3: Economy)">RBI</span> issued a circular on 6 April 2026 confirming that the percentage limits for <span class="key-term" data-definition="Foreign Portfolio Investor — an overseas entity that invests in a country's securities market, subject to regulatory caps (GS3: Economy)">FPI</span> exposure to the debt market will remain unchanged for FY27. The caps are 6% for <span class="key-term" data-definition="Government Securities — tradable debt instruments issued by the Central Government to raise funds; they are considered risk‑free (GS3: Economy)">G‑Secs</span>, 2% for State Government Securities (SGSs) and 15% for corporate bonds, calculated on the outstanding stock of securities.</p> <h3>Key Developments (FY27)</h3> <ul> <li><strong>FPI limits unchanged:</strong> 6% for G‑Secs, 2% for SGSs, 15% for corporate bonds.</li> <li><strong>Scope:</strong> Limits apply to the general route of investment for the entire fiscal year 2026‑27.</li> <li><strong>Implication:</strong> Continuity in foreign capital inflows helps stabilise the domestic debt market and supports fiscal deficit financing.</li> </ul> <h3>Important Concepts in Government Securities</h3> <p><span class="key-term" data-definition="Treasury Bill — a short‑term, zero‑coupon government security issued at a discount and redeemed at face value; maturities are 91, 182 or 364 days (GS3: Economy)">Treasury bills (T‑Bills)</span> are the short‑term arm of the debt market, while <span class="key-term" data-definition="Dated securities — long‑term government bonds with maturities ranging from 5 to 40 years (GS3: Economy)">dated securities</span> (or G‑Secs) cover the long‑term financing needs of the Union and State governments.</p> <p>In 2010, the RBI introduced <span class="key-term" data-definition="Cash Management Bills — short‑term instruments (≤91 days) issued to bridge temporary cash‑flow mismatches of the government (GS3: Economy)">Cash Management Bills (CMBs)</span>, which function like T‑Bills but are issued on an as‑needed basis.</p> <h3>Bond Yield‑Price Relationship</h3> <p>A bond’s <span class="key-term" data-definition="Yield — the effective rate of return on a bond, calculated as coupon payment divided by market price; it moves inversely with price (GS3: Economy)">yield</span> is not fixed; it varies with the market price. For a 10‑year G‑Sec with a ₹5 coupon on a ₹100 face value, a market price of ₹110 reduces the yield to 4.5% (₹5/₹110). Conversely, a price rise to ₹125 brings the yield down to 4%, aligning with the prevailing market rate.</p> <p>The inverse relationship is crucial for understanding how changes in <span class="key-term" data-definition="Interest rates — the cost of borrowing money, set by th