Global Interest in Indian Government Bonds on Rise
As of May 31 2024 factsheet, L&G India INR Government Bond UCITS ETF, is the largest of the five ETFs.
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Since September 2023, global investment in Indian government bonds has surged following JP Morgan's announcement of India's inclusion in its bond index, effective from June.
This has led to the launch of new global bond ETFs focused on Indian debt and an increase in assets for existing funds.
Currently, five leading global ETFs offer exposure to Indian government bonds, managing a total of $835 million in assets, up from less than $600 million before September 2023.
Operating under the UCITs framework regulated by the EU, these ETFs provide easier access to Indian debt for unregistered foreign players compared to direct FPI licences.
As per factsheet for investors and investment professionals dated May 31, 2024, the largest ETF is the L&G India INR Government Bond UCITS ETF with $698.9 million in assets, while Tabula's India government bond ETF holds $0.6 million.
Larger foreign funds typically opt for direct FPI licences, while smaller players use alternatives like Total Return Swaps and rupee-denominated bonds to invest in India's local debt market.
The ETFs purchase Indian government bonds as registered FPIs to offer convenient entry to local debt for unregistered foreign investors. Obtaining direct access to government bonds via FPI licences would require overseas investors navigating several operational hurdles.
