voluntary retention route (VRR) :
★ It is a new channel of investment available to FPIs to encourage them to invest in debt markets in India over and above their investments through the regular route.
★ The objective is to attract long-term and stable FPI investments into debt markets while providing FPIs with operational flexibility to manage their investments.
When was this route proposed?
★ This new investment route was proposed by the central bank in October 2018 at a time the rupee was weakening against the dollar very sharply.
★ There were also talks of a special NRI bond scheme to attract more dollar funds into the economy and stabilise the rupee.
Difference from Regular FPI :
★ Guidelines say that investments through VRR will be free of the macro-prudential and other regulatory prescriptions applicable to FPI investments in debt markets; provided FPIs voluntarily commit to retain a required minimum percentage of their investments in India for a period of their choice. But the minimum retention period shall be three years; or as decided by RBI.
Foreign Portfolio Investment:
★FPI stands for those investors who hold a short term view on the company, in contrast to Foreign Direct Investors (FDI).
★FPIs generally participate through the stock markets and gets in and out of a particular stock at much faster frequencies.
★ It is investment by non-residents in Indian securities including shares, government bonds, corporate bonds, convertible securities, infrastructure securities etc.
How much money can an FPI invest through this route?
★ Investments under this route as of now shall be capped at Rs 40,000 crore for VRR-GOVT and 35,000 crore per annum for VRR-COPR.
★ But the limit could be changed from time to time based on macro-prudential considerations and assessment of investment demand.
★ There will be separate limits for investment in government securities and investment in corporate debt.
Are there any other facilities for investors through VRR?
★ FPIs investing through this route will be eligible to participate in repos for their cash management, provided that the amount borrowed or lent under repo were not to exceed 10 per cent of the investment under VRR.
★They will also be eligible to participate in any currency or interest rate derivative instrument, OTC or exchange-traded instrument to manage their interest rate risk or currency risk.