UPSC Prelims Practice Questions — In a major reform, Government announces measures to deepen G-Sec market and facilitate greater Foreign Portfolio Investment (FPI) in equity segment

Q1. Among the various channels available to Foreign Portfolio Investors for investing in Indian debt, which one of the following is the ONLY route under which investment in 'specified' Government of India dated securities is permitted without any macro-prudential investment ceiling?

  • A. General Route
  • B. Voluntary Retention Route (VRR)
  • C. Fully Accessible Route (FAR)
  • D. Medium-Term Framework (MTF) Route

Q2. The 'Fully Accessible Route' (FAR) for non-resident investment in 'specified' Government of India dated securities is operationalised through notifications/circulars issued under the Foreign Exchange Management Act, 1999 by which one of the following?

  • A. Securities and Exchange Board of India
  • B. Reserve Bank of India
  • C. Department of Economic Affairs, Ministry of Finance
  • D. Financial Stability and Development Council

Q3. Which one of the following is the principal statute under which the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2019 have been made?

  • A. Foreign Exchange Management Act, 1999
  • B. Securities and Exchange Board of India Act, 1992
  • C. Companies Act, 2013
  • D. Securities Contracts (Regulation) Act, 1956

Q4. Under the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2019, which of the following are correctly classified as Category I Foreign Portfolio Investors?

  1. Foreign central banks
  2. Sovereign wealth funds
  3. Individual non-resident retail investors investing under the Portfolio Investment Scheme
  4. International or multilateral organisations or agencies
  • A. 1, 2 and 4
  • B. 2 and 3 only
  • C. 1, 3 and 4
  • D. 3 only

Q5. With reference to the changes announced in 2026 to the Portfolio Investment Scheme (PIS) for individual Persons Resident Outside India (PROIs), consider the following statements:

  1. Prior to the 2026 amendment, an individual PROI could invest up to 5% of the paid-up capital of a listed Indian company under the PIS.
  2. The 2026 amendment raises the aggregate ceiling for all individual PROIs taken together in a single listed Indian company from 10% to 24%.
  3. The individual PROI investment cap under the PIS has been raised from 5% to 15% of paid-up capital of a listed Indian company.
  • A. 1 only
  • B. 1 and 2 only
  • C. 2 and 3 only
  • D. 1, 2 and 3

Q6. Which one of the following authorities notifies the Foreign Exchange Management (Non-Debt Instruments) (Third Amendment) Rules, 2026, that operationalises the revised investment limits for individual Persons Resident Outside India under the Portfolio Investment Scheme?

  • A. Reserve Bank of India
  • B. Securities and Exchange Board of India
  • C. Department of Economic Affairs, Ministry of Finance
  • D. Department of Financial Services, Ministry of Finance

Q7. Which one of the following was the first major global bond index to commence phased inclusion of Indian Government Securities, with the inclusion taking effect from 28 June 2024?

  • A. Bloomberg Emerging Market Local Currency Government Index
  • B. FTSE Russell Emerging Markets Government Bond Index (EMGBI)
  • C. JPMorgan Government Bond Index–Emerging Markets (GBI-EM) Global Diversified
  • D. ICE BofA Emerging Markets Sovereign Bond Index

Q8. With reference to the 'Fully Accessible Route' (FAR) — the channel whose eligible Government of India dated securities form the basis for India's inclusion in global EM bond indices — which one of the following authorities operationalised this route?

  • A. Securities and Exchange Board of India (SEBI)
  • B. Ministry of Finance, Department of Revenue, through a notification under the Income-tax Act, 1961
  • C. Central Board of Direct Taxes (CBDT)
  • D. Reserve Bank of India, in consultation with the Government of India, with effect from 1 April 2020

Q9. With reference to the Indian financial system, the 'Voluntary Retention Route (VRR)' refers to which one of the following?

  • A. A scheme of the Reserve Bank of India allowing Foreign Portfolio Investors to invest in Indian debt markets in return for committing to retain a minimum portion of their investment for a stipulated period, with exemption from certain macroprudential limits
  • B. A scheme of the Reserve Bank of India under which resident individuals may remit funds abroad up to a prescribed annual ceiling for permissible current and capital account transactions
  • C. A route under which Non-Resident Indians can repatriate balances from their Non-Resident Ordinary (NRO) rupee accounts up to a notified annual ceiling
  • D. A facility under which foreign investors can subscribe, without any aggregate ceiling, to specified long-tenor Government securities and Sovereign Green Bonds notified by the Reserve Bank of India

Q10. With reference to the Voluntary Retention Route (VRR) for Foreign Portfolio Investors as compared with the General Route for FPI investment in debt, consider the following statements: 1. Unlike investments under the General Route, investments made under the VRR are exempt from the minimum residual maturity requirement and concentration limit prescribed by the Reserve Bank of India. 2. Under the VRR, FPIs are required to retain a minimum percentage of their Committed Portfolio Size for a stipulated retention period, whereas the General Route imposes no such retention commitment. 3. Unlike the General Route, the VRR permits FPI investment only in corporate debt instruments and excludes Central Government securities and State Development Loans. Which of the statements given above is/are correct?

  1. Unlike investments under the General Route, investments made under the VRR are exempt from the minimum residual maturity requirement and concentration limit prescribed by the Reserve Bank of India.
  2. Under the VRR, FPIs are required to retain a minimum percentage of their Committed Portfolio Size for a stipulated retention period, whereas the General Route imposes no such retention commitment.
  3. Unlike the General Route, the VRR permits FPI investment only in corporate debt instruments and excludes Central Government securities and State Development Loans.
  • A. 1 and 2 only
  • B. 2 and 3 only
  • C. 1 and 3 only
  • D. 1, 2 and 3

Q11. With reference to taxation of Foreign Portfolio Investors (FPIs) in India, what is the concessional rate of tax prescribed under Section 194LD of the Income-tax Act on interest income paid to FPIs/Qualified Foreign Investors in respect of specified rupee-denominated securities, prior to the exemption announced for G-Sec income from 01.04.2026?

  • A. 4 per cent
  • B. 5 per cent
  • C. 10 per cent
  • D. 20 per cent

Q12. With reference to the reform package announced by the Government on 5 June 2026 to deepen the G-Sec market, which of the following are correctly identified as incomes that have been granted income-tax exemption?

  1. Interest income arising to Foreign Portfolio Investors (FPIs) from investments in G-Secs on or after 01.04.2026.
  2. Capital gains arising to FPIs from investments in G-Secs on or after 01.04.2026.
  3. Interest and capital gains arising to the Bank for International Settlements (BIS) from its investments in G-Secs.
  4. Dividend income earned by FPIs from listed Indian companies on or after 01.04.2026.
  • A. 1 and 2 only
  • B. 1, 2 and 3 only
  • C. 3 and 4 only
  • D. 1, 2, 3 and 4

Q13. State Development Loans (SDLs), a category of dated Government Securities in India, are issued by which one of the following?

  • A. Reserve Bank of India on its own account
  • B. The respective State Governments
  • C. Union Ministry of Finance through the Public Debt Office
  • D. National Bank for Agriculture and Rural Development (NABARD)

Q14. In the context of the Government Securities market, which one of the following best describes 'Treasury Bills'?

  • A. Short-term debt instruments issued by the Government of India with maturities of less than one year, issued at a discount to face value and redeemed at par, carrying no coupon
  • B. Medium- to long-term coupon-bearing securities issued by the Government of India with tenors typically of 5 to 40 years
  • C. Floating-rate bonds issued by State Governments to finance their gross fiscal deficit, with semi-annual coupon resets
  • D. Capital-indexed securities issued by the Reserve Bank of India exclusively to retail investors as a hedge against inflation

Q15. Under the SEBI (Foreign Portfolio Investors) Regulations, 2019, which single entity is authorised to grant the certificate of registration to a Foreign Portfolio Investor in India?

  • A. Reserve Bank of India
  • B. Designated Depository Participant
  • C. Securities and Exchange Board of India directly through its Foreign Investors Cell
  • D. Financial Markets Division of the Department of Economic Affairs

Q16. Which one of the following operationalises the Foreign Exchange Management (Non-debt Instruments) Rules governing FPI equity investment in India?

  • A. Department of Financial Services, Ministry of Finance
  • B. Department of Revenue, Ministry of Finance
  • C. Department of Economic Affairs, Ministry of Finance
  • D. Department of Investment and Public Asset Management, Ministry of Finance