In a move to stimulate the foreign flows into infrastructure bonds, the Finance Ministry has eased norms for foreign institutional investors (FIIs) for investing in long term infrastruÂcture bonds. To lure FIIs, it has reduced lock-up period on such holdings to one year from three years for a five-year bond for overseas institutions investing up to $5 billion in infrastructure bonds.
Currently, FII investments up to $25 billion are allowed in long term infrastructure bonds that have a minimum residual maturity of five years and a lock-in period of at least three years. Industry insiders feel that the new rule that shortens the lock-in period for holdings is a start, but more needs to be done to accelerate investment in infrastructure bonds.
Foreign investors pay with holding tax of as much as 20 percent, depending on the tax treaty India holds with the corresponding country.