Government raises foreign investment limit in G-secs by $5 billion

In a move that would encourage foreign portfolio investment in Indo, the Government hiked the investment limit for foreign portfolio investors in government bonds by $5 billion to $30 billion.
However, the enhanced limit of $5 billion will be available for investments only to foreign central banks, sovereign wealth funds, multilateral agencies, endowment funds, insurance funds and pension funds.
A special window of $ 250 million will be made available for FIIs that have exhausted their reinvestment limits, as a one-time measure. However, investments using this special window will have a 90-day lock-in period.
What are G-secs?

• The Government securities (G-secs) which is also called gilt edged securities comprise dated securities issued by the Government of India and state governments as also, treasury bills issued by the Government of India. Reserve Bank of India manages and services these securities through its public debt offices located in various places as an agent of the Government.
• G-secs are mostly interest bearing dated securities issued by RBI on behalf of the Government of India. Government of India uses these funds to meet its expenditure commitments. These securities are generally fixed maturity and fixed coupon securities carrying semi-annual coupon. Since the date of maturity is specified in the securities, these are known as dated G-secs.

Key feature of G-secs:

• Issued at face value
• No default risk as the securities carry sovereign guarantee
• Ample liquidity as the investor can sell the security in the secondary market
• Interest payment on a half yearly basis on face value
• No Tax Deducted at Source (TDS)
• Can be held in Demat form

Month: Current Affairs - June, 2013