Investment Routes

Foreign Direct Investment (‘FDI’) means investment through equity instruments by a person resident outside India in an unlisted Indian company; or in 10% or more of the post issue paid-up equity capital on a fully diluted basis of a listed Indian company.

In case an existing investment by a person resident outside India in equity instruments of a listed Indian company falls to a level below 10% of the post issue paid-up equity capital on a fully diluted basis, the investment shall continue to be treated as FDI. ‘Fully diluted basis’ means the total number of shares that would be outstanding if all possible sources of conversion are exercised.

Permissible FDI can be made under “Automatic route” or “Government route”.

Investment under FDI are governed by guidelines specified under Foreign Exchange Management Act, 1999 (FEMA) and rules/regulations issued thereunder by Government of India and RBI and the Consolidated FDI Policy issued by Department for Promotion of Industry and Internal Trade (DPIIT) under the Ministry of Commerce and Industry, Government of India.

The foreign investors can invest under this route after obtaining a license from Securities and Exchange Board of India (SEBI).

Market entry is facilitated by Designated Depository Participants (DDPs) who performs the market registration process on behalf of SEBI. Application Form and KYC-related documents along with registration fees are submitted to the DDP.

FVCI registration license is perpetual, subject to payment of fees for every block of five years.

Securities, issued by an Indian company engaged in any sector mentioned below and whose securities are not listed on a recognised stock exchange at the time of issue of the said securities.

Units of a venture capital funds (“VCF”) or of a Category-I Alternative Investment Funds (“Cat-I AIF”) or units of a scheme or of a fund set up by such VCF or Cat-I AIF.

Equity or equity linked instrument or debt instrument issued by an Indian ‘start up’, irrespective of the sector in which the ‘start-up’ is engaged.

Investments under this route are governed by SEBI’s Foreign Venture Capital Investor Regulations,2000 and Foreign Exchange Management guidelines issued by the Government of India and RBI.

Non-Resident Indian INRI) or an Overseas Citizen of India (OCI) are allowed to invest in listed equities and debt, and any other securities as permissible under FEMA.

Individual limit of 5% of the total paid up equity capital in any company, and an overall composite limit of 10% is applicable. This limit, of 10%, can be raised to 24%.

Indian companies can raise capital through issuance of Depository Receipts (DRs), namely, Global Depository Receipts (GDRs)/ American Depository Receipts (ADRs) to foreign investors (except NRIs). A DR is a negotiable instrument in the form of a certificate denominated in foreign currency against the underlying equity shares of an Indian company. The DRs are listed on international stock exchanges of the specified jurisdiction. The list of the permissible jurisdictions and international stock exchanges, as specified by SEBI, is given below:

1. United States of America - NASDAQ, NYSE
2. Japan - Tokyo Stock Exchange
3. South Korea - Korea Exchange Inc.
4. United Kingdom excluding British Overseas Territories- London Stock Exchange
5. France - Euronext Paris
6. Germany - Frankfurt Stock Exchange
7. Canada - Toronto Stock Exchange
8. International Financial Services Centre in India - India International Exchange, NSE International Exchange

The Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 (FEM-NDI Rules) regulate foreign investment in India under the Foreign Exchange Management Act, 1999. There are multiple FEM-NDI schedules for foreign investors to invest into India, with attendant limits and regulations (FDI, FPI, NRI-PIS, FVCI, AIF, DR, Direct Overseas Listings).