India has been seeking to attract more foreign capital into government bonds through easier registration, lower taxes and efforts to secure entry into global bond indices. The push to deepen foreign participation in India's debt market is part of efforts to diversify funding sources and attract more stable capital inflows, with the rupee trading near historic lows against the U.S. dollar.
While equities have traditionally dominated foreign portfolio flows into India, investors have sold nearly $45 billion in equity investments between 2025 and 2026 so far, increasing the focus on attracting bond investments. Foreign investors have invested $14 billion in government bonds over the last year and this year.
India's benchmark 10-year sovereign bond yields are about 7%, while shorter-dated Treasury bills yield roughly 5.30%-6%, levels that compare favourably with many developed-market government securities.
The National Pension Service, which has more than .3 trillion in assets, will be one of the first investors to apply under SEBI's lower-compliance window for foreign investors investing only in government bonds, the sources said. The sources declined to be identified because discussions around the investment are private.
Email queries sent to South Korea's pension fund and SEBI were not answered.
The lower-compliance window was opened to make the investment process easier for pension and sovereign wealth funds, which tend to prefer investing in Indian government bonds, the first source said.
"Higher interest and queries are coming from these category of investors. South Korea's pension fund is in the advanced stage," the first source said.
Under the new route, low-risk investors such as sovereign wealth funds and pension funds need to submit documentation only every 10 years, compared with the earlier requirement of three years. These funds also do not have to furnish their end-investor details, as required for equity and corporate bond investors.
Unlike several major markets where overseas investors can access government bonds with limited upfront registration requirements, India requires investors to obtain registration and submit documentation establishing their identity and eligibility.
South Korea's National Pension Service already invests in Indian securities through 33 offshore funds managed by different fund managers, although much of that investment is in equities.
The proposed move would mark NPS' first dedicated government-securities-only investment vehicle in India, creating a separate channel for a larger allocation to sovereign bonds, the second source said.
Foreign holdings of government bonds are close to 4 trillion rupees ($41.75 billion), according to clearing corporation data. Pension funds hold a relatively small 469 billion rupees in Indian debt, separate data from the National Securities Depository shows.
Much of the foreign investment in Indian sovereign debt is concentrated in longer-dated benchmark government securities rather than short-term debt instruments. The potential entry of South Korea's state-run pension fund through the lower-compliance route would add another dedicated channel for foreign investment in India's government securities market as authorities seek to deepen overseas participation.
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