South Korea’s NPS Seeks License for Direct Investment in Indian Bonds

South Korea's National Pension Service (NPS), ranked as the world’s third-largest pension fund with assets surpassing $1.3 trillion, is moving to gain authorization to invest directly in Indian government bonds. This step corresponds with India's broader efforts to attract more foreign capital into its debt markets by simplifying investment regulations and compliance procedures.

The Securities and Exchange Board of India (SEBI) has recently introduced a new compliance framework specifically designed for sovereign wealth funds and pension funds that invest exclusively in government securities. Under this revised system, investors are required to submit documentation once every ten years instead of every three years. Additionally, they no longer have to disclose end-investor details, a requirement that remains for equity and corporate bond investments.

Sources close to the development reveal that NPS is one of the first large international pension funds to apply under this updated scheme. This application reflects India's ongoing strategy to diversify its funding base and encourage more stable foreign capital inflows, which is particularly important as the Indian rupee remains near historic lows against the U.S. dollar.

Foreign investment into Indian government bonds has seen notable growth, with approximately $14 billion entering the market over the past two years. Historically, foreign portfolio investments favored equity markets, but equities experienced nearly $45 billion in outflows between 2025 and 2026. In contrast, government bonds have started attracting increased interest due to their comparatively attractive yields and perceived stability.

Currently, India’s 10-year sovereign bond offers yields around 7 percent, while shorter-dated Treasury bills provide yields ranging from 5.30 to 6 percent. These rates are appealing compared to many developed countries, where bond yields remain relatively low. Foreign investors generally concentrate their holdings in longer-term Indian government debt instruments.

Up until now, NPS has maintained exposure to Indian securities primarily through 33 offshore funds, which mainly invest in equities. The new license application would enable NPS to channel investments directly into Indian government bonds, allowing for a more substantial allocation to sovereign debt and better alignment with its long-term investment objectives.

India continues to foster greater foreign participation in its debt markets by relaxing entry barriers, reducing taxes, and aiming for inclusion in major global bond indices. These measures form part of a comprehensive plan to ensure steady foreign capital inflows and support the development of deeper, more liquid financial markets.

In a related development, Sagarmala Finance Corporation is preparing to issue India’s first blue bond on September 28. The bond aims to raise 6 billion rupees to finance maritime infrastructure projects such as port modernization and coastal road improvements. SBI Capital Markets is overseeing the issuance, which holds a AA+ credit rating from Icra and Care, signaling strong creditworthiness.

This issuance aligns with India’s commitment to sustainable financing and infrastructure development, complementing the broader initiatives to attract diverse sources of funding across sectors.