1. The external sector liberalisation started in India with the economic liberalisation process that commenced in the early nineties – moving to a floating exchange rate regime and freeing up current account transactions. 2. The enactment of the Foreign Exchange Management Act, 1999 codified this arrangement with relatively free current account transactions (except for a negative list) and controlled capital account transactions. 3. Liberalisation in this context basically meant gradually freeing up capital account transactions. 4. The 1991 payment crisis of India pushed India to open its financial market to FIIs. 5. ==1992 - the policy regime for foreign portfolio investments in India commenced when Foreign Institutional Investors (FIIs, or, since January 2014, FPIs) were allowed to invest in domestic financial instruments, basically equity.== 6. ==1995 - FIIs were given access to corporate debt markets.== 7. [July 10, 1997](https://www.rbi.org.in/History/Brief_Chro1991to2000.html) - FIIs (debt funds, that is those in the category of 100%) were permitted to invest in government dated securities. 8. [October 21, 1997](https://rbidocs.rbi.org.in/rdocs/AnnualReport/PDFs/rbi98arannex.pdf) - FIIs (with a ceiling of 30 per cent investment in debt instruments) were also permitted to invest in government dated securities within the ceiling of 30%. 9. Jan 5, 1998 - RBI decided in principle to permit FIIs to invest in Treasury Bills. 10. [April 29, 1998](https://rbi.org.in/scripts/AnnualReportPublications.aspx?Id=514) - FIIs were permitted to purchase/sell Treasury Bills within the overall approved debt ceilings. 11. [April 25, 2019](https://website.rbi.org.in/web/rbi/-/notifications/investment-by-foreign-portfolio-investors-fpi-in-debt-review-11545) - FPIs were permitted to invest in municipal bonds (included under State Government Securities). 12. [March 25, 2014](RBI_Notification_20140325_Foreign%20Portfolio%20Investor%20-%20investment%20under%20Portfolio%20Investment%20Scheme,%20Government%20and%20Corporate%20debt.pdf) - Foreign Institutional Investors (FIIs), their sub-accounts and Qualified Foreign Investors (QFIs) have been merged into a single class of investors known as Foreign Portfolio Investors (FPI) under the 'Foreign Portfolio Investment’ scheme. 13. [Jan 07, 2014](https://www.sebi.gov.in/legal/regulations/jan-2014/sebi-foreign-portfolio-investors-regulations-2014-last-amended-on-february-27-2017-_34673.html) - SEBI notified SEBI (Foreign Portfolio Investors) Regulations, 2014 (“FPI Regulations”) 14. March 26, 2018 - SEBI constituted a Working Group under the chairmanship of Harun R Khan (former deputy governor, RBI) on the SEBI (FPI) Regulations, 2014, that is to review the regulatory framework *(2014 FPI regulations)*. 15. [Sept. 2018](SEBI_Report_201809_Interim%20Report%20Of%20The%20Working%20Group%20On%20Know%20Your%20Client%20Requirements%20For%20Foreign%20Portfolio%20Investors_HR%20Khan.pdf) - Group submitted an interim report on KYC requirements 16. ==[May 24, 2019](SEBI_Reports_20190524_Working%20Group%20on%20SEBI%20(FPI)%20Regulations,%202014_Chairman-Harun%20R%20Khan.pdf) - SEBI released the final report of HR Khan group on the SEBI (FPI) Regulations, 2014.== 17. [Sept 23, 2019](https://www.sebi.gov.in/legal/regulations/sep-2019/securities-and-exchange-board-of-india-foreign-portfolio-investors-regulations-2019_44436.html) - Based on the recommendations of the working group, SEBI notified the [SEBI (Foreign Portfolio Investors) Regulations, 2019](https://www.sebi.gov.in/legal/regulations/dec-2025/securities-and-exchange-board-of-india-foreign-portfolio-investors-regulations-2019-last-amended-on-december-3-2025-_98240.html), in supersession of the SEBI (Foreign Portfolio Investors) Regulations, 2014. 18. Aug 05, 2022 - SEBI [constituted](https://www.sebi.gov.in/media/press-releases/aug-2022/sebi-constitutes-fpi-advisory-committee-fac-_61783.html) a Standing Committee "FPI Advisory Committee (FAC)", to provide recommendations and advise SEBI on policy matters relating to Foreign Portfolio Investors (‘FPIs’). 19. Thus, the FPI regime has followed the standard process of liberalising equity flows first and then gradually freeing up debt capital. 1. Debt Capital - The access to debt markets - sovereign and corporate - is subject to macro caps and other macro-prudential limits. These are designed to safeguard the domestic economy from excessively speculative hot money flows. Usually the investor appetite in this segment has been biased towards the securities of short term maturity: treasury bills, commercial papers, and bonds maturing in less than a year. 1. There is an effort to liberalise FPI debt flows further with the introduction of the [[Foreign Investment in India (Various Routes)#Foreign Investment in G-secs- Fully Accessible Route (FAR)|Fully Accessible Route (FAR)]] which places no limit on non-resident investment in specified benchmark securities. Since over time, virtually all securities will fall under the FAR category, the move is unambiguously towards an eventual unfettered access for non-residents into Government securities. 2. ==Efforts to get India included under global bond indexes and the complementary move towards placing G-secs under global custodians, once implemented, will encourage debt flows in future.== 3. Any liberalisation of the FPI investment limits in G-sec is done with the overall objective of prudential management of the capital account in general and mitigating the impact of speculative carry forward trade (borrowing in a low-interest currency to invest in a high-interest currency) in particular. 2. Equity - Apart from sectoral caps to regulate control, portfolio flows into equities in India are virtually unrestricted. # By Routes ## 1. FPI (Debt & Equity)- Foreign Portfolio Investments 1. A person resident outside India may hold foreign investment (debt and non-debt) either as: 1. Foreign Direct Investment (FDI), 2. Foreign Portfolio Investment (FPI), 3. Foreign Venture Capital Investment (FVCI) 4. or as Investment by NRIs/OCIs in any particular Indian company. 2. Here we discuss about FPI 3.  Foreign Portfolio Investment (FPI) is any investment made by a person resident outside India in equity instruments where such investment is (a) less than 10 percent of the post issue paid-up equity capital on a fully diluted basis of a listed Indian company or (b) less than 10 percent of the paid-up value of each series of equity instruments of a listed Indian company. 4. Foreign Portfolio Investor (FPI) is a person registered with the Indian securities market regulator, SEBI in accordance with the provisions of the Securities and Exchange Board of India (Foreign Portfolio Investors) [Regulations](https://www.sebi.gov.in/sebiweb/home/HomeAction.do?doListing=yes&sid=1&ssid=3&smid=0), 2019 as amended from time to time. 5. This route allows investing in listed financial assets (like stocks, bonds, derivatives) or mutual funds in India. 6. But the two principal areas of FPI are equity and debt. 7. The limit is less than 10% in listed equities, that is paid-up equity capital of the entity including any holding of convertibles/outstanding warrants/Depository Receipts. *So there is no intent to control the entities they invest in.* 1. The FPI registration in India is done through a designated depository participant (DDP), which can be a sub-custodian bank, on behalf of SEBI. 2. While SEBI sets the regulations and guidelines, the DDPs, including sub-custodian banks, facilitate the registration process by submitting applications and verifying documentation, ultimately issuing the FPI registration number and certificate on SEBI's behalf. 3. It is restricted to institutional investors. 4. FPI (applicant) cannot be an NRI/an overseas citizen of India (OCI)/ a resident Indian (RI) individual, but NRIs/OCIs/RI may part of the FPI applicant 5. They are two categories of FPIs. 6. FPI Regulations came into effect on 01 June 2014, after merging of Foreign Institutional Investors (FIIs) and Qualified Foreign Investors (QFIs) into a single class of investors known as Foreign Portfolio Investors (FPI). 8. Some FAQs on FPIs [here](https://www.fpi.nsdl.co.in/Static/FAQ.aspx) 9. **Investment restrictions** - [Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2019](https://www.sebi.gov.in/legal/regulations/dec-2025/securities-and-exchange-board-of-india-foreign-portfolio-investors-regulations-2019-last-amended-on-december-3-2025-_98240.html) specify the securities in which FPIs are allowed to invest. Simply, the two principal areas of FPI are equity and debt. 1. Debt - _Investments_ in debt securities by FPIs are regulated both by _SEBI_ and the RBI. 1. **SEBI** 1. The Securities and Exchange Board of India (Foreign Portfolio Investors) [Regulations](https://www.sebi.gov.in/sebiweb/home/HomeAction.do?doListing=yes&sid=1&ssid=3&smid=0), 2019. 2. Listed Debt - The Securities and Exchange Board of India (Issue and Listing of Non-Convertible Securities) Regulations, 2021 3. Listed Debt & Equity - The Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations 2015 2. **RBI** 1. FEM(Permissible Capital Accounts Transactions) Regulations, 2000 notified vide [Notification No. FEMA 1/2000-RB dated May 03, 2000](https://www.rbi.org.in/Scripts/BS_FemaNotifications.aspx?Id=155), as amended from time to time; 2. FEM (Borrowing and Lending) Regulations, 2018 notified vide [Notification No. FEMA 3(R)/2018-RB dated December 17, 2018](https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11441&Mode=0), as amended from time to time; and 1. This regulation governs all types of borrowing and lending transactions between a person resident in India and a person resident outside India, both in foreign currency and Indian Rupee. 3. FEM (Debt Instruments) Regulations, 2019 notified vide [Notification No. FEMA. 396/2019-RB dated October 17, 2019](https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12099&Mode=0), as amended from time to time. 4. Master Direction - In January 2025, the Financial Markets Regulation Department of RBI issued ==Master Direction – [Reserve Bank of India (Non-resident Investment in Debt Instruments) Directions, 2025](https://rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=12765)==. It consolidates all the directions issued through various circulars under the above three regulations. 2. **Statistics** - [NSDL](https://www.fpi.nsdl.co.in/web/Reports/ReportsListing.aspx) and [CDSL](https://www.cdslindia.com/Publications/ForeignPortInvestor.html) both maintain the data of FPI investments. 1. At the end of June 2025, total FPI Assets Under Custody stood at INR 80.79 trillion. 2. It also has list of FPIs. 3. SEBI, through notification dated January 7, 2014, merged the existing categories of Foreign Institutional Investors (FIIs), their sub-accounts, and Qualified Foreign Investors (QFIs) into a single class of investors called Foreign Portfolio Investors (FPIs) through the [SEBI (Foreign Portfolio Investors) Regulations, 2014](https://www.google.com/search?q=SEBI+%28Foreign+Portfolio+Investors%29+Regulations%2C+2014&oq=SEBI+merges+FIIs%2C+sub+accounts+and+QFIs+into+one+single+class+FPI&gs_lcrp=EgZjaHJvbWUyBggAEEUYOTIGCAEQRRg80gEHMzQ3ajBqNKgCALACAQ&sourceid=chrome&ie=UTF-8&mstk=AUtExfAgf1tIt26TnDZ3_eJWvVFIAfFdjhIJVWpcyYQa8GSgCx6PnmxSK9Wg0RsqONprVBW1SGf-xu8jIT-ZnkLo7RGTqenNMhc3jUqFK9rH4FU3oxrHZe7DMfKPtdOP7hCOdTqIVdhIEUE7psm_49_gsTN5IkA_7-v2Oj4oZu7nYp0UUFZn9rgV4tFmdtE3XTt9EXIBZNtSbScVcDUAh1qSxjCM3TNm1xuqjGTrykpWs_L3-Q&csui=3&ved=2ahUKEwiS2uXg3YKPAxVYsFYBHeK-FygQgK4QegQIARAC). It was effective from June 1, 2014, and it simplified the regulatory framework for foreign portfolio investment in India. It provided a uniform set of rules and a single window clearance system through Designated Depository Participants-DDP. 4. SEBI allots the registration number, while the Designated Depository Participant (DDP)/custodian, acting on behalf of SEBI, grants the registration certificate, conducts due diligence, ensures regulatory compliance, and monitors the FPI’s investments. It acts as an intermediary between SEBI, the regulator, and the FPI. 5. SEBI/Master Circulars - [Master Circular](https://www.sebi.gov.in/sebiweb/home/HomeAction.do?doListing=yes&sid=1&ssid=6&smid=0) for Foreign Portfolio Investors, Designated Depository Participants and Eligible Foreign Investors. 10. The regime for Foreign Portfolio Investment (FPI) has also been fairly liberal. 11. As far as equity is concerned, portfolio investment has virtually unrestricted access. 12. Foreign Portfolio Investors (FPIs) were allowed to participate in the exchange traded currency derivatives (ETCD) on June 20, 2014 for the purpose of hedging the currency risk arising out of the market value of their exposure to Indian debt and equity securities. 13. [June 27 2024](https://www.sebi.gov.in/legal/circulars/jun-2024/participation-by-non-resident-indians-nris-overseas-citizens-of-india-ocis-and-resident-indian-ri-individuals-in-sebi-registered-fpis-based-in-international-financial-services-centres-in-india_84449.html) - SEBI allowed up to 100% _investment_ in _IFSC_-registered FPIs by NRIs/OCIs/RIIs. FPI can participate in Indian debt market by either by 5 routes or ECB. ### 1.1 Debt (Rupee)- 5 Routes 1. Here debt means instruments specified in sub-paragraph – A of paragraph 1 of [Schedule 1](https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12099&Mode=0#:~:text=permitted%20derivatives%20transactions.-,SCHEDULE%201,-Purchase%20and%20sale) to Foreign Exchange Management (Debt Instruments) Regulations, 2019. 2. The investment limits are allocated for 3 categories in terms of instrument, and for 2 categories of investors 1. government securities (g-secs), 2. state government securities (SGSs)- they are Dated securities of State Governments which are also called State Development Loans (SDLs) and municipal bonds, which have been included since [April 25, 2019](https://website.rbi.org.in/web/rbi/-/notifications/investment-by-foreign-portfolio-investors-fpi-in-debt-review-11545) 3. corporate bonds 1. Here “corporate bonds” mean “Corporate debt securities” shall include all instruments specified in sub-paragraph – A of paragraph 1 of Schedule 1 to Foreign Exchange Management (Debt Instruments) Regulations, 2019, other than Government securities and municipal bonds as specified at clause (a) and clause (k) of that sub-paragraph, as amended from time to time. 3. There are 2 sub-categories of investors, which are: ^d96bc5 1. For all FPIs - 'General' category 2. Long-Term FPIs (Sovereign Wealth Funds (SWFs), Multilateral Agencies, Endowment Funds, Insurance Funds, Pension Funds and Foreign Central Banks) - They get additional limit, over and above the limit for 'General Category' 4. So total investment limit is divided into 5 categories in total: 1. G-Sec General 2. G-Sec Long Term 3. SGS General 4. SGS Long Term 5. Corporate Bonds 5. There are aggregate limits on FPI in sovereign as well as corporate debt but these limits are progressively increased over time in keeping with the volume of capital flows and macroeconomic conditions. 6. FPI into debt instruments of a certain minimum maturity *is encouraged so* that the investment assumes credit risk and does not involve mere interest rate arbitrage. But there is no minimum residual maturity requirement for any category. **Investment Limits** 7. [June 25, 2012](RBI_Notification_20120625_Foreign%20investment%20in%20India%20by%20SEBI%20registered%20FIIs%20in%20Government%20securities%20and%20SEBI%20registered%20FIIs%20and%20QFIs%20in%20infrastructure%20debt.pdf) - The existing limit of USD 15 billion for FII investment in Government securities stands enhanced with immediate effect by USD 5 billion to USD 20 billion 8. The limits for FPI investment in for a financial year in the 3 categories are announced by RBI once a year in the month of April for the two halves of the financial year (April-September and October-March) through a notification titled '*Limits for investment in debt and sale of Credit Default Swaps by Foreign Portfolio Investors (FPIs)*'. RBI may revise limits mid-year if required. 1. Up to 2021, the notifications were titled 'Investment by Foreign Portfolio Investors (FPI) in Government Securities: Medium Term Framework (MTF)'. 9. April 3, 2025 - ==[Limit for FY25-26](RBI_Notification_20250403_Limits%20for%20investment%20in%20debt%20and%20sale%20of%20Credit%20Default%20Swaps%20by%20Foreign%20Portfolio%20Investors%20(FPIs).pdf)== 10. April 06, 2026 - [Limit for FY26-27](RBI_Notification_20260406_Limits%20for%20investment%20in%20debt%20and%20sale%20of%20Credit%20Default%20Swaps%20by%20Foreign%20Portfolio%20Investors%20(FPIs).pdf) 11. The limits are progressively increased over time in keeping with the volume of capital flows and macroeconomic conditions. 1. **Medium Term Framework:** In the [Fourth Bi-monthly Monetary Policy Statement for the year 2015-16](https://rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=35087#p30) issued on September 29, RBI announced [Medium Term Framework (MTF)](https://rbi.org.in/Scripts/NotificationUser.aspx?Id=10059&Mode=0) for a more predictable regime for investment by FPI in Govt. Securities 2. The limits are apportioned to different categories of investors with preference towards long-term stable investors and investments in longer maturities keeping in view the sensitivity of foreign investors to global macro-economic / financial factors and possible sudden reversals, which could potentially impact the systemic stability. 3. The MTF for FPI limits in debt securities were worked out in October 2015 to have more predictable regime for FPI investment. 4. Under the MTF, the limits for FPI investment in the central G-secs were increased in phases to reach 5 per cent of the outstanding stock by March 8. In case of SDLs, this limit was fixed at 2.0 per cent of the outstanding stock by March 2018 in a phased manner. 5. In April 2018, this limit was reviewed and the limit for FPI investment in G-secs were increased by 0.5 per cent each year to 5.5 per cent of outstanding stock of securities in 2018-19 and 6.0 per cent of outstanding stock of securities in 2019-20. The limit for FPI investment in SDLs were kept unchanged at 2.0 per cent of outstanding stock of securities. 6. ==The actual revised limits for G-secs, SDLs and corporate bonds are revised half yearly and now set out for April-September and October-March at the beginning of the year.== 12. Here the Corporate debt limit for FPIs shall mean the Combined Corporate debt limit for all foreign investments in Rupee denominated bonds issued both onshore and overseas by Indian corporates. 13. The debt utilisation status can be viewed [here](https://www.fpi.nsdl.co.in/Reports/ReportDetail.aspx?RepID=1). 14. They can invest in listed and [unlisted](https://www.sebi.gov.in/sebi_data/attachdocs/1488277921324.pdf) ([[RBI_Press Release_161117_Investment by Foreign Portfolio Investors (FPI) in corporate debt securities.pdf|allowed]] since [[RBI_Amendment_160824_Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) (Eleventh Amendment) Regulations, 2016.pdf|October 24, 2016]]) corporate debt (non-convertible debentures/bonds) and securitized debt instruments. 1. [April 29, 2011](RBI_Notification_20110429_Foreign%20investments%20in%20India%20by%20SEBI%20registered%20FIIs%20in%20other%20securities.pdf)- RBI enhanced the FII investment limit in listed non-convertible debentures / bonds, with a residual maturity of five years and above, lock-in-period of three years, and issued by Indian companies in the infrastructure sector 1. Limit was raised from USD 5 to 25 USD billion 2. With this the total limit available to FIIs for investment in listed non convertible debentures / bonds would be USD 40 billion with a sub limit of USD 25 billion for investment in listed non-convertible debentures / bonds  issued by corporates in the infrastructure sector. 3. RBI also allowed SEBI registered FIIs to invest in unlisted non-convertible debentures / bonds issued by corporates in the infrastructure sector, subject to conditions mentioned in the above circular. 2. [Aug 9, 2011](RBI_Notification_20110809_Investment%20in%20the%20units%20of%20Domestic%20Mutual%20funds.pdf) - Investment in the units of Domestic Mutual funds 1. Qualified Foreign Investors as defined therein (QFIs) were allowed to invest in units of Mutual Funds debt schemes upto a limit of USD 3 billion within the overall limit of USD 25 billion *(mentioned in the above circular)* for FII investment in non-convertible debentures / bonds issued by Indian companies in the infrastructure sector. 3. [Nov 03, 2011](RBI_Notificaiton_20111103_Foreign%20investment%20in%20India%20by%20SEBI%20registered%20FIIs%20in%20other%20securities.pdf) - FIIs were allowed to invest in non-convertible debentures / bonds issued by NBFCs categorized as ‘Infrastructure Finance Companies’(IFCs) by the Reserve Bank of India within the overall limit of USD 25 billion, 1-year lock-in, and original maturity *(changed from residual to original)* of 5 years and above 4. [June 25, 2012](RBI_Notification_20120625_Foreign%20investment%20in%20India%20by%20SEBI%20registered%20FIIs%20in%20Government%20securities%20and%20SEBI%20registered%20FIIs%20and%20QFIs%20in%20infrastructure%20debt.pdf) - QFIs can invest in those MF schemes that hold at least 25 per cent of their assets (either in debt or equity or both) in the infrastructure sector under the current USD 3 billion sub-limit for investment in mutual funds related to infrastructure 5. October 24, 2016 - RBI introduced corresponding amendments to FEMA. 6. [November 17, 2016](RBI_Notification_20161117_Investment%20by%20Foreign%20Portfolio%20Investors%20(FPI)%20in%20corporate%20debt%20securities.pdf) - RBI expanded the investment basket of eligible instruments for investment by FPIs under the corporate bond route, and permitted FPIs to invest in unlisted corporate debt securities in the form of non-convertible debentures/bond (unlisted NCDs), and securitised debt instruments. 7. [February 27, 2017](https://www.sebi.gov.in/legal/regulations/feb-2017/sebi-foreign-portfolio-investors-amendment-regulations-2017-last-amended-on-february-27-2017-_34288.html) and [February 28, 2017](https://www.sebi.gov.in/legal/circulars/feb-2017/investments-by-fpis-in-corporate-debt-securities_34300.html) - SEBI amended the provisions of the SEBI (Foreign Portfolio Investors) Regulations, 2014 to allow registered FPIs to invest in unlisted NCDs or bonds issued by an Indian company (subject to certain guidelines) and securitized debt instruments. 8. Before this, FPIs were permitted to invest only in listed or to-be-listed debt securities. Investment in unlisted debt securities was permitted only in case of companies in the infrastructure sector. 15. Participation of foreign investors in the domestic bond markets is always examined in the light of the policy stance relating to calibrated approach to ==capital account convertibility and the possibility of interest rate and exchange rate volatility due to reversal of capital flows== [^5] 16. ==Regulations/Master Directions governing the investment by non-resident in DEBT instruments.== 17. There are 5 routes/schemes available for investment in debt instruments for non-residents: #### General Route 1. It is only for FPIs 2. It is for both corporate and govt. debt 1. **Govt. Securities - there are 5 limits here** 1. Type of Securities - Govt. securities includes central government securities (G-secs), state government securities-SGSs (which also includes municipal bonds) 1. [April 25, 2019](RBI_Notification_20190425_Investment%20by%20Foreign%20Portfolio%20Investors%20(FPI)%20in%20Debt%20-%20Review.pdf) - FPIs were permitted to invest in municipal bonds (included under SGSs). 2. Total Limit - 6% for G-Secs and 2% for SGS, of the total outstanding stock of securities for the year. The absolute limit is also released along with this. 3. Limits for the year (in each of the 5 categories) - It is announced in 1st week of April by notification 4. Concentration limit - In each of the 3 categories of debt, investment by a long-term FPI shall not exceed 15%, and by a general FPI shall not exceed 10%, of the RBI-notified investment limit for that category for the year. 5. Security-wise limit - Not more than 30% of the outstanding stock of a security. 6. Short-term investment limit *(at all times, not just at purchase)* 1. It caps the total investment by the FPI in securities having residual maturity of less than 1 year, within each of these categories (that is, central Government Securities (including Treasury Bills) or State Development Loans) 2. [April 27, 2018](RBI_Notification_20180427_Investment%20by%20Foreign%20Portfolio%20Investors%20(FPI)%20in%20Debt%20-%20Review.pdf) - short-term investment limit (of 20% of the total investment by the FPI in that category) introduced, after minimum residual maturity requirement was withdrawn. 3. [Jan 23, 2020](RBI_Notification_20200123_Investment%20by%20Foreign%20Portfolio%20Investors%20(FPI)%20in%20Debt.pdf) - short-term investments by an FPI in government securities (Central Government securities, including Treasury Bills and State Development Loans) and corporate bonds was increased from 20% to 30% of the total investment of that FPI in any category. 1. So FPIs cannot invest more than 30% of the total investment in any category in securities having residual maturity of less than 1 year. 4. May 08, 2025 7. Minimum residual maturity - *None (since 2018).* 1. Aug 13, 2012 - [Report](RBI_Group-Committee_20120813_Report%20of%20the%20Working%20Group%20on%20Enhancing%20Liquidity%20in%20the%20Government%20Securities%20and%20Interest%20Rate%20Derivatives%20Markets.pdf) of the Working Group on Enhancing Liquidity in the Government Securities and Interest Rate Derivatives Markets. 2. [July 23, 2014](RBI_Notification_20140723_Foreign%20investment%20in%20India%20by%20SEBI%20registered%20Long%20term%20investors%20in%20Government%20dated%20Securities.pdf) - The requirement of investment by FPIs in securities with minimum residual maturity of 3 years was put in place. The policy was to nudge FPI into debt instruments of a certain minimum maturity so that the investment assumes credit risk and does not involve mere interest rate arbitrage. 3. [April 27, 2018](RBI_Notification_20180427_Investment%20by%20Foreign%20Portfolio%20Investors%20(FPI)%20in%20Debt%20-%20Review.pdf) - Revised foreign investment norms, minimum residual maturity requirement was withdrawn, allowing FPIs to invest in Treasury Bills once again, but subject to a macro-prudential cap where their short-term investments (under 1 year) cannot exceed 20% of their total investment of that FPI in that category (there are 3 categories of debt, that is,  G-secs, SDLs and corporate debt securities). 4. Lack of liquidity can also lead to less than expected response of the foreign investors in this segment, even though there is no requirement for a minimum residual maturity. 2. **Corporate Debt:** 1. Total limit - 15% of total outstanding corporate debt 2. Issue-wise - 50% of any issue of a corporate debt security except for those in para 4.4(viii). 3. On May 08, 2025, the short-term investment limit and concentration limit for corporate debts were withdrawn. The simplification was aimed to boost the demand and liquidity for short-end corporate debt. 1. Concentration limit - *Removed since 08 May*, 2025 but earlier it was 15% by a long term FPI and 10% for other FPI. But the limits were rarely utilized. 2. Short-term investment limit - *Removed since 08 May, 2025* 1. Here, _short-term_ refers to securities in the FPI’s corporate debt portfolio having a **residual maturity of up to 1 year**. 2. [June 15, 2018](https://website.rbi.org.in/web/rbi/-/notifications/investment-by-foreign-portfolio-investors-fpi-in-debt-review-updated-up-to-february-26-2021-11303) - 'short-term investments' were also introduced and capped at 20%. 3. [January 23, 2020](https://www.rbi.org.in/scripts/NotificationUser.aspx?Id=11797&Mode=0) - short-term investment limit was increased from 20% to 30% 4. [May 08, 2025](RBI_Notification_20250508_Investments%20by%20Foreign%20Portfolio%20Investors%20in%20Corporate%20Debt%20Securities%20through%20the%20General%20Route%20–%20Relaxations.pdf)- short-term investment limit was removed. 1. This relaxation solved the issue of selling long-term bonds when nearing maturity, that is in their final year, especially as these bonds have low liquidity in secondary market and were initially bought from the issues for holding them till maturity 2. With this, FPIs need not worry about buying other bonds when their long-term bonds had less than 1 year in maturity. 4. Minimum residual maturity - Minimum residual maturity for a new investment is still 1 year except for certain debt securities provided in para 4.4(viii). 1. [Feb 3, 2015](RBI_Notification_20150203_Foreign%20investment%20in%20India%20by%20Foreign%20Portfolio%20Investors.pdf) - It was set to 3 years to curb 'volatile flows' and encourage stable investments. For govt. debt, it was already 3 years. 2. [April 27, 2018](RBI_Notification_20180427_Investment%20by%20Foreign%20Portfolio%20Investors%20(FPI)%20in%20Debt%20-%20Review.pdf) - it was reduced to 1 year as FPI flows into corporate debt dried up. 5. ==Hence, FPIs still cannot make new investments in short-term corporate debt except for those in para 4.4(viii). 6. FPIs can invest in listed and unlisted NCDs. 1. In 2016, the RBI allowed FPIs to invest in unlisted non-convertible debentures. ==So they can invest in listed and un-listed NCDs.== 7. One may think upon how desirable is it to allow foreign investors total freedom to access the domestic debt that is protected against credit and foreign exchange risk? Only for arbitraging on interest rates? [^1] #### Voluntary Retention Route (VRR) 1. ==[Oct 5, 2018](https://rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=45165) - RBI released [discussion paper](RBI_Reports_Discussion%20Paper_20181005_%20Date%20-%2005%20Oct%202018%20‘Voluntary%20Retention%20Route’%20(VRR)%20for%20investment%20by%20FPIs%20–%20Discussion%20Paper.pdf) on ‘Voluntary Retention Route’ (VRR) for investment by FPIs== 2. [March 1, 2019](RBI_Press%20Release_20190301_RBI%20introduces%20the%20Voluntary%20Retention%20Route%20for%20Investments%20by%20Foreign%20Portfolio%20Investors%20(FPIs)%20-%20Voluntary%20Retention%20Route.pdf) - The investment [scheme](https://rbi.org.in/Scripts/NotificationUser.aspx?Id=11492&Mode=0) was introduced 3. [March 1, 2019](https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11492&Mode=0) - Directions were issued 1. It is only for FPIs. 2. It is for both corporate and govt. debt. 3. The aim of this scheme to undertake long-term investments in Indian debt markets. Under this scheme, FPIs have been given greater operational flexibility in terms of instrument choices besides exemptions from certain regulatory requirements. 4. There is also no micro-level caps in this route, other than the total limit 5. As the name suggests, the FPI voluntarily commits to retaining a Committed Portfolio Size (CPS) in India for a minimum of three years. 4. [May 24, 2019](https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11561&Mode=0) - Scheme was revised 5. [May 24, 2019](RBI_Press%20Release_20190524_RBI%20notifies%20the%20revised%20Voluntary%20Retention%20Route%20for%20Investments%20by%20Foreign%20Portfolio%20Investors%20(FPIs)%20and%20opens%20allotment%20‘on%20tap’.pdf) - RBI reopened the allotment of limits on tap under the revised scheme 6. [Jan 23, 2020](https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11561&Mode=0) - Directions were updated 7. [May 22, 2020](https://rbi.org.in/scripts/NotificationUser.aspx?Mode=0&Id=11896) - Relaxations in VRR route were announced view of the disruptions caused by COVID-19 8. [Feb 10, 2022](RBI_Press%20Release_20220210_RBI%20reopens%20allotment%20of%20investment%20limit%20under%20the%20Voluntary%20Retention%20Route%20for%20Investments%20by%20Foreign%20Portfolio%20Investors.pdf) - The overall investment limit under VRR was reopened and increased to INR 2.5 trillion. 9. ==Feb 10, 2022 - [Directions](RBI_Notification_20220210_‘Voluntary%20Retention%20Route’%20(VRR)%20for%20Foreign%20Portfolio%20Investors%20(FPIs)%20investment%20in%20debt.pdf) ‘Voluntary Retention Route’ (VRR) for Foreign Portfolio Investors (FPIs) investment in debt were updated.== 1. As of 2020, the RBI replaced the segmented limits (General / Long-Term) 10. Jan 23, 2020 - 11. [Feb 6, 2026](RBI_Notification_20260206_Voluntary%20Retention%20Route%20–%20Imparting%20predictability%20and%20increasing%20ease%20of%20doing%20business.pdf) - Investment limits under the VRR were subsumed under the investment limit for FPI investments under the General Route. So the separate ₹2.5 lakh crore was removed. #### Fully Accessible Route (FAR) ^48d541 1. It was first announced in the Union Budget 2020-21 and came into effect from [April 01, 2020](https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11849&Mode=0). 2. [March 30, 2020](RBI_Notification_20200330_Fully%20Accessible%20Route%20for%20Investment%20by%20Non-residents%20in%20Government%20Securities.pdf) - RBI introduced the separate route viz., Fully Accessible Route (FAR) for investment by non-residents in specified dated securities issued by the Government of India. 3. It is only for govt. debt. 4. The aim was also to enhance the inclusion of India’s G-secs in global bond indices, 5. ==There is no limit on investment in G-Secs under this route.== The 'General Route' has limits. 6. It is for FPIs, NRIs and OCIs and any other person resident outside India, as may be notified by the Reserve Bank from time to time). *Investors other than above, may invest through International Central Securities Depositories.* 7. Sovereign Green Bonds designated as ‘specified securities’ under the FAR. *Notifications are titled* - ‘Fully Accessible Route’ for Investment by Non-residents in Government Securities – Inclusion of Sovereign Green Bonds 1. [Jan 23, 2023](https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12444&Mode=0) - all Sovereign Green Bonds issued by the Government in the fiscal year 2022-23 were designated as ‘specified securities’ under the FAR. 2. [Nov 8, 2023](https://rbi.org.in/scripts/NotificationUser.aspx?Mode=0&Id=12563) - all Sovereign Green Bonds issued by the Government in the fiscal year 2023-24 were designated as ‘specified securities’ under the FAR. 3. [Nov 07, 2024](https://rbi.org.in/scripts/NotificationUser.aspx?Mode=0&Id=12747) - Sovereign Green Bonds of 10-year tenor issued by the Government in the second half of the fiscal year 2024-25 as ‘specified securities’ under the FAR. 8. It includes following G-Secs: 1. All securities included under the FAR in this [list](https://rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=12765#AN_1:~:text=List%20of%20all%20%27Specified%20securities%27%20included%20under%20the%20FAR%20(both%20outstanding%20and%20matured)); and 1. [Jan 23, 2023](https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12444&Mode=0) - 2. Nov 8, 2023 - all Sovereign Green Bonds issued by the Government in the fiscal year 2023-24 as ‘specified securities’ under the FAR. 2. All new issuances of 5-year, 7-year and 10-year tenors by the Central Government; and 3. Any other security that the Reserve Bank may notify in this regard. 9. Risk & Road-ahead: 1.  With the Fully Accessible Route, as discussed above, over time ==the entire G-sec issuance would be eligible for non-resident investment. == 2. While experience of other countries suggest that non-residents are unlikely to hold a major portion of outstanding stock, substantial debt holdings might make India vulnerable to the risk of sudden reversals/capital outflows. *Related* - [[Capital Flows - Account & Management#Arguments Against Capital flows|Arguments against capital flows]] 3. Since this channel was permitted in the context of inclusion of India’s G-secs in global bond indices, there is a natural safety mechanism as index investors are unlikely to indulge in sudden reversals. ==It may need to be considered, from a macro-prudential perspective, whether FAR should be linked to index inclusion== #### Sovereign Green Bonds 1. It is only for G-Secs 2. Union Budget FY 2022-23 - Union Finance Minister announced that Sovereign Green Bonds will be issued for mobilising resources for green projects. 3. [Nov 2022](PIB_20221109_Union%20Finance%20Minister%20Smt.%20Nirmala%20Sitharaman%20approves%20India’s%20First%20Sovereign%20Green%20Bonds%20Framework.pdf) - GoI India approved the India’s First Sovereign Green Bonds Framework 1. Green Finance Working Committee (GFWC) was constituted by the Finance Ministry, chaired by the DEA, to validate key decisions, select eligible projects, and oversee the framework. 2. ==[Framework](GoI_2022_Framework%20for%20Sovereign%20Green%20Bonds%20Government%20of%20India_DEA.pdf) (2022) for Sovereign Green Bonds of Government of India by DEA.== 4. [April 05, 2024](RBI_Notification_20240829_Scheme%20for%20Trading%20and%20Settlement%20of%20Sovereign%20Green%20Bonds%20in%20the%20International%20Financial%20Services%20Centre%20in%20India.pdf) - RBI announced the Scheme for Trading and Settlement of Sovereign Green Bonds  by eligible foreign investors in the International Financial Services Centre (IFSC) in India, effective from August 29, 2024. 5. Feb 2026 - [Article](CCIL_Rakshitra_202602_Frontrunner%20to%20Backburner–%20Status%20Update%20on%20Indian%20Sovereign%20Green%20Bonds.pdf) titled "Frontrunner to Backburner – Status Update on Indian Sovereign Green Bonds" by Payal Ghose and Abhishek, published in Feb 2026 edition of CCIL's Monthly Newsletter Rakshitra. #### Special Rupee Vostro Account Route 1. Eligible investors: Persons resident outside India that maintain a Special Rupee Vostro Account (SRVA) in terms of circular dated [July 11, 2022](RBI_Notification_20220711_International%20Trade%20Settlement%20in%20Indian%20Rupees%20INR.pdf) (SRVA holders’), using the rupee surplus balance maintained in the SRVA. 1. [July 11, 2022](https://rbi.org.in/Scripts/NotificationUser.aspx?Id=12358&Mode=0) - RBI allowed AD bank in India to open Special Rupee Vostro Accounts [(SRVA)](https://www.rbi.org.in/commonman/english/scripts/FAQs.aspx?Id=3373)of correspondent bank/s of the partner trading country to facilitate INR trade settlements. 2. These accounts are opened for settlement of trade transactions 3. Before this, under the Rupee Drawing Arrangements (RDAs), cross-border inward remittances received in India through Exchange Houses in Rupee vostro accounts were limited to Rs 2 lakh for for financing of trade transactions. 2. Eligible instruments - Central Government Securities (including Treasury Bills) and non-convertible debentures/bonds and commercial papers issued by an Indian company. 3. It is covered under the "Special Rupee Vostro Account Route" in [Reserve Bank of India (Non-resident Investment in Debt Instruments) Directions, 2025](https://rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=12765) 4. Related Section - [International Trade Settlements in INR](Deposits%20and%20Accounts.md#^19b51a)] in the note "Deposits and Accounts" **Hot Money** 1. Inflows on account of foreign portfolio investment through route other than VRR is often (if not always) seen as ‘hot money’, which can cause sudden stoppages or reversals. 2. But since the instruments are rupee denominated, any sell-off involves a loss on account of fall in both the price of the instrument as well as the rupee which can ==*be expected*== to have an equilibrating effect, that is discourage further sell-off and stabilise the market. ### 1.2. Equity 1. Foreign Portfolio Investment’ in equity is any investment made by a person resident outside India in equity instruments where such investment is: less than 10 percent of the post issue paid-up equity capital on a fully diluted basis of a listed Indian company OR less than 10 percent of the paid-up value of each series of equity instruments of a listed Indian company 2. Here [‘Equity Instruments’](https://www.rbi.org.in/scripts/bs_viewmasdirections.aspx?id=11200#:~:text=4.-,Equity%20instruments,-4.1%20An%20Indian) are following instruments issued by Indian 1. Equity shares, 2. convertible debentures - all those debentures that are fully and mandatorily convertible debentures. 3. preference shares and 4. share warrants 3. Foreign Investment (Non-Debt) in India is regulated in terms of sub-section 2A of Section 6 and Section 47 of the Foreign Exchange Management Act, 1999 (FEMA) read with [Foreign Exchange Management (Non-Debt Instruments) Rules, 2019](https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11723&Mode=0) (FEM NDI Rules, 2019). 4. Here is the [Master Direction on Foreign Investment (Non-Debt) In India](https://www.rbi.org.in/scripts/bs_viewmasdirections.aspx?id=11200)for Authorised Persons to help with the implementation of the FEM NDI Rules, 2019. ## 2. Foreign Venture Capital Investment - FVCI (Debt or Equity, in Rupee) 1. Investment by an FVCI was permitted with effect from December 26, 2000 2. **SEBI** - These investors have to register with [SEBI](https://www.sebi.gov.in/legal/regulations/sep-2024/securities-and-exchange-board-of-india-foreign-venture-capital-investor-regulations-2000-last-amended-on-september-6-2024-_86924.html) under the *Securities and Exchange Board of India (Foreign Venture Capital Investor) Regulations, 2000. In short, it is read as SEBI (FVCI) Regulations, 2000* 3. **RBI** - Investment in India by FVCI was governed by the provisions of Schedule 6 of the FEM (Transfer or Issue of Security by a Person Resident outside India) 1. On April 18, 2016, however, through *FEM (Transfer or Issue of Security by a Person Resident outside India) [(Third Amendment)](https://rbi.org.in/Scripts/NotificationUser.aspx?Id=10386&Mode=0)Regulations, 2016*, the existing Schedule 6 was replaced by the new SCHEDULE 6 - INVESTMENT BY A REGISTERED FOREIGN VENTURE CAPITAL INVESTOR. 2. On October 20, 2016, a [circular](https://rbi.org.in/scripts/NotificationUser.aspx?Mode=0&Id=10649) was issued by RBI in this regard. 3. The FEM (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000 were superseded by the 2017 Regulations, which were subsequently amended until 2019. >[!note] In 2019 (October 17, 2019), a key change happened. The debt and non-debt parts were split >1. Hence, in a simultaneous manner, FEM (Non-Debt Instruments) Rules, 2019 [(FEM NDI Rules, 2019)](https://incometaxindia.gov.in/Documents/Provisions%20for%20NR/FEM-Non-debt-Instruments-Rules-2019.htm) were issued by the Central Government (DPIIT, Ministry of Commerce & Industry and DEA, Ministry of Finance) and for the Debt instruments, the RBI issued Foreign Exchange Management (Debt Instruments) [Regulations](https://rbi.org.in/scripts/BS_FemaNotifications.aspx?Id=12099), 2019 (FEM DI Regulations, 2019). >2. *Rules vs Regulations* - The FEMA 1999 empowers the Central Government to prescribe, in consultation with the RBI, rules pertaining to capital account transactions, not involving debt instruments >3. ==Non-Debt (Equity, land, etc.)== > 1. FEM NDI Rules, 2019, which superseded the FEM (Acquisition and Transfer of Immovable Property in India) Regulations, 2018. > 1. Now the Schedule 7 of FEM (NDI) Rules, 2019 as amended from time to time, specifies law for FVCI. > 2. [Master Direction-Foreign Investment (Non-Debt) In India](https://www.rbi.org.in/scripts/bs_viewmasdirections.aspx?id=11200) was issued to help with the implementation of the FEM NDI Rules, 2019. > 3. [Master Direction – Acquisition or Transfer of Immovable Property under Foreign Exchange Management Act, 1999](https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=10196#F3) > 4. [Others](Foreign%20Investment%20in%20India%20(Various%20Routes).md#Debt) > 5. *Acquisition or Transfer of Immovable Property in India (by Indian residents outside India)* > 1. It is governed by Rule 21 of the [Foreign Exchange Management (Overseas Investment) Rules, 2022 dated August 22, 2022](https://rbidocs.rbi.org.in/rdocs/content/pdfs/GazetteRules23082022.pdf) and paragraph 25 of the [Foreign Exchange Management (Overseas Investment) Directions, 2022 dated August 22, 2022](https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12381&Mode=0). > 2. This part is covered in [External - Overseas Investments](External%20-%20Overseas%20Investments.md) >4. ==Debt== > *Investment in Debt Instruments (listed in  [Schedule 1](https://rbi.org.in/scripts/BS_FemaNotifications.aspx?Id=12099#SC1) of the this regulations) in India by a Person Resident Outside India is regulated by the* > 1. [FEM (Debt InstrumentsI) Regulations, 2019](https://rbi.org.in/scripts/Bs_viewcontent.aspx?Id=4757). It superseded > 1. the FEM (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2017, dated November 07, 2017. It superseded: > 1. [FEM (Transfer or issue of security by a person resident outside India) Regulations, 2000](https://www.rbi.org.in/Scripts/BS_FemaNotifications.aspx?Id=174), dated 3rd May 2000 > 2. [FEM (Investment in firm or proprietary concern in India) Regulations, 2000](https://www.rbi.org.in/Scripts/BS_FemaNotifications.aspx?Id=178), dated 3rd May 2000 > 2. [Others](Foreign%20Investment%20in%20India%20(Various%20Routes).md#Debt) >5. *A quick recall*: > 1. The Act is FEMA, 1999, which is a law passed by Parliament. > 2. The Rules are issued by the Central Government under clauses (_aa_) and (_ab_) of sub-section (2) of section 46 of the FEMA Act, 1999. > 3. The Regulations are issued by the RBI under clause (b) of sub-section (3) of Section 6 and Section 47 of the FEMA Act, 1999. 4. Registration is done through a DP. 5. After registration, they do not require any approval from Reserve Bank of India and can invest into following : 1. unlisted (mainly) companies in these sectors. Such companies are called Indian Venture Capital Undertaking (IVCU). 2. startups in any sector, that is companies which are not older than five years. 3. Units of a Venture Capital Fund (VCF) or of a Category I Alternative Investment Fund (Cat-I AIF) (registered under the SEBI (AIF) Regulations, 2012) or 4. Units of a Scheme or of a fund set up by a VCF or by a Cat-I AIF 5. Some portion of the corpus can also be invested in securities on a recognized stock exchange subject to the provisions of the SEBI (FVCI) Regulations, 2000. 6. *What is VCF?* 1. A VCF is defined as a fund established in the form of a trust, a company including a body corporate and registered under the Securities and Exchange Board of India (Venture Capital Fund) Regulations, 1996 which has a dedicated pool of capital raised in a manner specified under the said Regulations and which invests in Venture Capital Undertakings in accordance with the said Regulations. 6. It can be equity instruments, equity linked instruments (debt that has an equity component) like (OCDs), Compulsorily convertible debentures (CCDs) or debt instruments like Non-convertible debentures (NCDs). 1. **NCDs:** There has to be a component of equity. So investments in NCDs is possible if there is already an equity or equity-linked investments 2. The upper limit of investment in debt or debt instruments like NCDs is at 33% of the total investment. 7. It is the only route that allows to invest in optionally convertible debt instruments. 8. FVCI in equity instruments of an Indian company is subject to the the reporting, sectoral caps, entry routes and attendant condition 9. The purchase / sale of shares, debentures and units can be at a price that is mutually acceptable to the buyer and the seller. Thus FVCIs are not subject to the pricing rules like in FDI. >[!warning] Thus, FPI can invest in debt through FPI route or ECB or Foreign Venture Capital Investment (debt or equity) ## 3. FDI (Equity, in Rupee) - Foreign Direct Investment 1. A person resident outside India may hold investment *on a repatriable basis, or on a non-repatriable basis in some cases for NRIs/OCIs, in equity instruments of an Indian company or to the capital of an LLP* either as: 1. *Foreign Direct Investment (FDI),* 2. Foreign Portfolio Investment (FPI), 3. Foreign Venture Capital Investment (FVCI) in any particular Indian company. 4. or as Investment by NRIs/OCIs in any particular Indian company. 2. A foreign investment by a person resident outside India through [equity instruments](https://www.rbi.org.in/scripts/bs_viewmasdirections.aspx?id=11200#:~:text=4.-,Equity%20instruments,-4.1%20An%20Indian) 1. in unlisted Indian company (any investment by a non-resident in equity instruments); 2. or **minimum 10% of the post issue paid-up equity capital on a fully diluted basis of a listed Indian company, subject to sector based caps, is considered FDI. 3. Fully diluted basis’ means the total number of shares that would be outstanding if all possible sources of conversion are exercised. 4. 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. 3. Any foreign individual or firm or any other association of people can invest in any Indian company or set up an Indian company through FDI. So FDI is permitted from all types of foreign investors. 4. Here the investment should be in equity securities. Some leeway is provided through hybrid securities – fully and compulsorily convertible preference shares and debentures. But the other hybrid securities such as partially convertible debentures, optionally convertible debentures or equities with embedded optionality are not treated at par with equities and hence not permitted as instruments for making foreign direct investment. 5. Even non-convertible/ optionally convertible/ partially convertible preference shares funds for which have been received after April 30, 2007 shall be treated as debt. 1. It is structured to allay the appreciation that a FDI should not be used as a camouflage for debt. But how complex does the structure become! In a manner of speaking, every investment is an act of speculation. Every investor must have an expectation about future state of affairs and the cash flows or return that will accrue to him. Every act of investment is subject to the usual information asymmetry. Therefore, every investment contract must provide for the probable states of affairs and how the investor will protect himself against the uncertainties and the information problems. Straitjacketing investment contracts, thus, often results in disputes, or worse, much needed investment shying away from socially useful sectors [^2]. 6. In other words, _debt investments_ under the FDI _route_ should be by way of subscription to the hybrid instrument called compulsorily convertible debentures (CCDs). 7. So if an instrument is not fully and compulsorily convertible, then it is not treated as a FDI. 1. So partially convertible debentures, optionally convertible debentures, non-convertible debentures (NCDs) come under ECB. But FPI investments in NCDs are not considered under the ECB 2. FPIs are also allowed to [invest](https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12099&Mode=0#:~:text=Permission%20to%20Foreign%20Portfolio%20Investors) in unlisted and listed non-convertible debentures (NCDs) under "General or VRR" route. 8. Thus FDI is characterized by lasting interest/long term engagement with some influence on management. 9. FDI brings in access to better technology, efficient management and business practices, growth and welfare and so on 10. Thus, FDI is positioned high in the hierarchy of capital inflows. 11. There are some operational restrictions on FDI in so that these equity instruments have to be sold and bought at fair value. The logic is fairly simple. An instrument of FDI should not be a camouflage for debt. 1. In normal times and for traditional industries, these provisions are fine. But of late, we are increasingly being made aware that richer instruments with more structure may be needed for investment in, say, infrastructure sector where cash flows are typical. Similarly, there may be need for some flexibility in valuation in, for example, start-up technology firms. We are seized of the problems and working towards a solution to remove the irritants. 12. A related section - [[Capital Flows - Account & Management#Arguments For Capital flows|Arguments for Capital Flows]]. 13. **Reasons for poor FDI flows:** 1. Usually, the capital account regulations are not the cause. 2. ==Lower taxation, favorable domestic investment climate, infrastructural support, ease of business, fiscal consolidation, inflation control, low level of NPAs, low and sustainable current account deficit, sound policies, robust regulatory framework promoting a strong and efficient financial sector, prudential supervision of financial institutions, and effective systems and procedures for controlling capital flows, etc. and so on., greatly enhance the chances of ensuring that such flows foster sustainable growth and do not lead to disruption and crisis.== 3. In other words, these factors can be regarded as preconditions for faster openness in capital account. 4. ==It can perhaps be said that the benefits from addressing these issues will be far more that any liberalisation of capital flows into Indian financial markets.== 14. **Legal Framework:** FDI is undertaken in accordance with the Foreign Direct Investment (FDI) Policy issued by the Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce and Industry, from time to time, considering the sector-specific policies and regulations. 15. It is governed by: 1. Rules - FEM (Non-Debt Instruments or NDI) Rules, 2019 dated 17.10.2019 [notified](https://incometaxindia.gov.in/Documents/Provisions%20for%20NR/FEM-Non-debt-Instruments-Rules-2019.htm) by the Department of Economic Affairs (DEA), *Ministry of Finance*, NOTIFICATION NO. S.O. 3732(E) [F.NO.1/14/EM/2015], DATED 17-10-201. 1. It *superseded* the 1. Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2018 [Notification](https://m.rbi.org.in/scripts/BS_FemaNotifications.aspx?Id=11248) No. FEMA 21(R)/2018-RB 1. It *superseded the* Foreign Exchange Management (Acquisition and transfer of immovable property in India) Regulations, 2000 [Notification](https://www.rbi.org.in/scripts/BS_FemaNotifications.aspx?Id=175) No.FEMA 21 /2000-RB dated 3rd May 2000. 2. Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2017 [Notification](Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 dated 17.10.2019) No. FEMA 20(R)/2017-RB dated 07.11.2017 (FEMA 20R Regulations) 1. It *superseded the* 1. FEM (Transfer or issue of security by a person resident outside India) Regulations, 2000 ([Notification No. FEMA 20](https://www.rbi.org.in/Scripts/BS_FemaNotifications.aspx?Id=174)) 2. FEM (Investment in firm of proprietary concern in India) Regulations, 2000 read with the [Notification](https://www.rbi.org.in/Scripts/BS_FemaNotifications.aspx?Id=178) No. FEMA 24/2000-RB dated May 3, 2000. 2. Oct 17, 2019 - RBI made regulations, called [FEM (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019](https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11723&Mode=0), relating to mode of payment and reporting requirements for investment in India by a person resident outside India 3. Directions - ==[Master Direction on Foreign Investment In India (Equity)](https://www.rbi.org.in/scripts/bs_viewmasdirections.aspx?id=11200).== 4. [Others](Foreign%20Investment%20in%20India%20(Various%20Routes).md#Regulatory%20framework)  5. To summarize, the FEMA Regulations which prescribe amongst other things the mode of investments i.e. issue or acquisition of shares / convertible debentures and preference shares, manner of receipt of funds, pricing guidelines and reporting of the investments to the Reserve Bank. 16. **FAQs** - [FAQs](https://fifp.gov.in/) on FDI on the website of Foreign Investment Facilitation Portal **(FIFP)**, which is the new online single point interface of the Government of India for investors to facilitate Foreign Direct Investment. 17. **Statistics** - Here are the [statistics](https://dpiit.gov.in/publications/fdi-statistics) on FDI in India. 1. 1. India attracted total FDI inflow of USD 70.97 bn during the financial year 2022-23. 2. Total FDI inflows in the country in the last 23 years (April 2000 - March 2023) are USD 919 bn while the total FDI inflows received in the last 9 years (April 2014- March 2023) was USD 595.25 bn which amounts to nearly 65% of total FDI inflow in last 23 years. 3. Top 5 sectors receiving highest FDI Equity Inflow during FY 2022-23 are Services Sector (Fin., Banking, Insurance, Non Fin/ Business, Outsourcing, R&D, Courier, Tech. Testing and Analysis, Other) (16%), Computer Software & Hardware (15%), Trading (6%), Telecommunications (6%) and Automobile Industry (5%). 4. Mauritius (26%), Singapore (23%), USA (9%), Netherland (7%) and Japan (6%) emerge as top 5 countries for FDI equity inflows into India FY 2022-23. 5. Top 5 States receiving highest FDI Equity Inflow during FY 2022-23 are Maharashtra (29%), Karnataka (24%), Gujarat (17%), Delhi (13%), and Tamil Nadu (5%). 18. **Entry Routes:** 1. Permissible FDI can be made under “Automatic route” or “Government route”. 2. “Automatic route” means the entry route through which investment by a person resident outside India does not require the prior approval of the Reserve Bank of India or the Central Government. 1. FDI up to 100% is allowed under the automatic route in almost all the activities/sectors. 3. “Government Route” means the entry route through which investment by a person resident outside India requires prior Government approval and foreign investment received under this route shall be in accordance with the conditions stipulated by the Government in its approval. 4. Besides the entry conditions on foreign investment, the investment/investors are required to comply with all relevant sectoral laws, regulations, rules, security conditions, and state/local laws/regulations. 5. To summarize, the FEMA Regulations prescribe the mode of investments i.e. issue or acquisition of shares / convertible debentures and preference shares, manner of receipt of funds, pricing guidelines and reporting of the investments to the Reserve Bank. 19. Over the last 3 decades( from 1990s to 2010s), FDI has become more or less unrestricted except for restrictions on the extent of entry, also called sectoral investment limits - the degree of control that can be ceded to a non-resident, which are motivated by stability, strategic or socio-economic considerations. Thus there are restriction on entries that cannot really be faulted on economic logic. 20. June 5, 2017 - GoI announced the abolition of the _Foreign Investment Promotion Board_ (FIPB), a government entity through which inward investment proposals were routed to obtain required government approvals from involved ministries 21. Nov 2024 - RBI issued [guidelines](https://www.rbi.org.in/Scripts/NotificationUser.aspx/NotificationUser.aspx?Id=12749) for reclassification of Foreign Portfolio Investment to Foreign Direct Investment (FDI). 1. After re-classification, the entire investment of the FPI in the Indian company shall be considered as FDI and shall continue to be treated as FDI even if the investment falls to a level below ten percent subsequently. 2. Post reclassification of foreign portfolio investment to FDI, the said investment shall be governed by Schedule I to the Rules. 22. **FDI vs FPI and Debt (FPI Route + ECB) vs Equity (FDI + FPI Equity)** 1. From 2006-07 to 2020-21, it has been [Chart 1](https://rbi.org.in/scripts/BS_ViewBulletin.aspx?Id=20627#C1) (see [Annex](https://rbi.org.in/scripts/BS_ViewBulletin.aspx?Id=20627#AN1) for all charts) that the direct investments (FDI flows) outstripping portfolio investments (FPI flows) and equity flows (FDI plus FPI equity[4](https://rbi.org.in/scripts/BS_ViewBulletin.aspx?Id=20627#F4)) outstripping debt flows (FPI Debt plus ECB). 2. ==FPI flows into equity over the 15-year period (2006-07 to 2020-21) accounts for 73% of total FPI inflows, while flows into debt account for the remaining 27%.== 23. **FDI in Sectors** 1. [April 17, 2020](DPIIT_20200417_Review%20of%20Foreign%20Direct%20Investment%20(FDI).pdf) - FDI policy revised to require prior government approval for countries sharing land border with India (notably China). 2. [June 14, 2021](DPIIT_20210614_Review%20of%20Foreign%20Direct%20Investment%20(FDI)%20policy%20on%20Insurance%20Sector.pdf) - FDI limit under automatic route in insurance sector hiked to 74% 3. [Feb 2024](https://www.pib.gov.in/PressReleasePage.aspx?PRID=2007876&reg=3&lang=2) - FDI in space and satellites sector liberalised. 4. Feb 11, 2025 - FDI sectoral cap in the insurance sector was revised from 49% to 74% under the automatic route. 5. [Feb 2026](GoI_202602_Review%20of%20Foreign%20Direct%20Investment%20policy%20on%20Insurance%20Sector.pdf) - 100% FDI allowed in insurance via automatic route by DPIIT, which became effective on May 2, 2026 >Box 6.II.2 - [Is FDI COVID-Proof?](RBI_Annual%20Report_2021.pdf#page=119&selection=173,0,174,19) in RBI's Annual Report 2021 >Box II.7.1 - [India’s Outward FDI Trends: Insights from the Gravity Model](RBI_Annual%20Report_2025.pdf#page=107&selection=107,0,108,59) in RBI's Annual Report_2025 ## 4. Investment by (Non-resident Indians or Overseas Citizens of India (OCI) 1. Investments can be made using the PIS scheme (_mandatory for listed equity in the secondary market_) or through the non-PIS route. 2. Under the PIS scheme, investments can be made on a repatriation basis using an NRE account designated as an NRE-PIS account, and on a non-repatriation basis through NRO funds (often referred to as PINS). 3. Apart from this, they need NRE/NRO savings bank account, NRE/NRO demat account, and NRE/NRO trading account with a stock broker. 4. So the transaction by the NRI/OCI has to be routed through a designated authorised dealer bank branch (for PIS route reporting). 5. Investments made through NRO accounts from rupee funds earned in India are repatriable up to USD 1 million per financial year (subject to conditions). Funds received from abroad or held in NRE/FCNR(B) accounts are freely repatriable. 1. Some categories of equity investments are non-repatriable even if the paid out of inward remittances. 6. **Investment by NRIs/OCIs in NCDs** 1. 2. Non-Resident Indians may invest in debt instruments as specified in sub-paragraphs (B) and (C) of paragraph 1 of schedule 1 to the Foreign Exchange Management (Debt Instruments) Regulations, 2019. 3. Such investments shall not be subject to any investment limit under Reserve Bank of India [(Non-resident Investment in Debt Instruments)](https://rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=12765) Directions, 2025 7. To summarise for NRIs and OCIs, here are the two Master Directions: 1. Debt - Master Direction - Reserve Bank of India [(Non-resident Investment in Debt Instruments)](https://rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=12765) Directions, 2025 2. Non-Debt 1. [Master Direction – Foreign Investment in India](https://www.rbi.org.in/scripts/bs_viewmasdirections.aspx?id=11200) dated Jan 04, 2018, It deals with any investment made by a person resident outside India on a repatriable basis (and on non repatriable basis for NRIs/OCIs) in equity instruments of an Indian company or to the capital of an LLP. So it was issued to help with the implementation of the FEM NDI Rules, 2019. 1. Before this, there was [Master Circular on Foreign Investment in India dated July 01, 2015](RBI_Master Circular_20150701_Master Circular on Foreign Investment in India.pdf) and updated upto October 30, 2015 2. [Master Direction](https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=10196#F3) -  Acquisition or Transfer of Immovable Property under Foreign Exchange Management Act, 1999 3. FEM (Non-Debt Instruments) Rules, 2019 dated October 17, 2019. It superseded: 1. [FEM (Acquisition and Transfer of Immovable Property in India) Regulations, 2018](https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11248&Mode=0) 3. [Others](Foreign%20Investment%20in%20India%20(Various%20Routes).md#Regulatory%20framework) 4. [SEBI Presentation](https://investor.sebi.gov.in/iematerial.html) - Investment by Non Resident Indians (NRIs) in Indian Securities Market # By Asset Class (Routes) ## 1. Debt (External Debt) 1. FPI - in rupee debt securities (both central and state govt, as well as corporate) 2. FVCI 3. External Commercial Borrowing (Debt in Rupee and FCY) - This [[ECB (Borrowings in Rupee and FCY)|note]] has more details 1. FCY denominated ECB 2. Indian Rupee (INR) denominated ECB 1. Rupee-denominated borrowings from non-residents, which may be raised onshore or offshore in form of Loans (including bank loans), Floating/fixed rate notes, bonds, debentures, Preference shares (non-convertible), Trade credits beyond 3 years, Financial leases 1. But ECB framework is not applicable in respect of the investment in Non-convertible Debentures (NCDs) in India made by Registered Foreign Portfolio Investors (RFPIs). 2. Foreign currency loans given domestically by AD Category I banks out of the proceeds of FCNR (B) deposits do not come under the ECB framework. 2. Rupee-denominated plain vanilla bonds issued overseas (Masala Bonds), and typically listed on London Stock Exchange (LSE). 4. FVCI (provided equity investment exists) ## 2. Non-Debt 1. FDI 2. FPI 3. FVCI Foreign investments in AIFs route through FDI, FPI (Cat III units, with limits), or FVCI (Cat I AIFs/VCFs). For REITs/InvITs, FDI or FPI only, and no FVCI route. ## 3. Combined (1+2) If we combine them and few other items, we get total [External Debt](External%20Debt-India.md) 1. Debt-creating part of capital (financial) account: 1. Foreign investment 1. Direct Investment - FDI (only debt instrument here is inter-company debt), 2. Portfolio investment - investment under FPIs, FVCI, NRI/OCI investments, etc. in debt securities (private & govt. sector)) 2. Other external debt such as loans (ECBs, short-term loans like trade credit (Buyers' Credit and Suppliers' Credit), external assistance to the govt. of India), IMF-SDR, etc, and 3. foreign currency and deposits, like banking capital such as NRI deposits, deposits with RBI, etc. # Hierarchy of Capital Flows 1. This [[Capital Flows - Account & Management#Hierarchy of capital flows|section]] talks about the RBI's preference for different capital flows: # Framework for Hedging FX risk 1. RBI's Approach 1. Here RBI's [approach](RBI_Speeches_20150518_Is%20India%20ready%20for%20full%20Capital%20Account%20Convertibility?.pdf#page=15&selection=45,13,70,58) has been guided by two axioms: *"Anyone anywhere in the world with an exposure to the Rupee should be able to enter into a derivative transaction to hedge the currency risk, and the transaction should be in the on-shore market. Beyond that, we have been endeavouring to expand the set of derivative transactions. We are not ready yet to allow unfettered trading of the rupee for pure speculation."* 2. Hedging economic risks - With the increasing integration of the economy with the rest of the world, more and more entities are likely to, directly or indirectly, get exposed to foreign exchange risks. There are likely to be demands for permitting hedging of economic exposures. While this may be tricky given the current extent of capital account convertibility, the possibility of such hedging being permitted over a period of time as we progress further down the path of capital account convertibility needs to be carefully evaluated 2. Hedging on contracted exposures, and later on probable exposures (past performance basis) 1. Box: Recent measures for easing certain foreign exchange restrictions in [HR Khan's speech, Nov 2010](RBI_Speech_20141110_Indian%20Foreign%20Exchange%20Market-%20Recent%20Developments%20and%20the%20Road%20Ahead_Harun%20R.%20Khan.pdf#page=6&selection=168,0,168,69) 3. [June 20, 2014](RBI_Notification_20140620_Risk%20Management%20and%20Inter-bank%20Dealings-%20Guidelines%20relating%20to%20participation%20of%20Foreign%20Portfolio%20Investors%20(FPIs)%20in%20the%20Exchange%20Traded%20Currency%20Derivatives%20(ETCD)%20market.pdf) - RBI allowed foreign portfolio Investors (FPIs) to to enter into Exchange Traded Currency Derivatives [ETCD](Currency%20Futures%20&%20Options.md) market. 1. Until this, only persons resident in India were allowed to participate in ETCD 4. [Feb, 2018](https://rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=43079)and [Aug, 2018](https://rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=44637)  - A review of the existing facilities for hedging of foreign exchange risk by non-residents and residents was announced 5. [Feb 15, 2019](RBI_Press%20Release_20190215_RBI%20announces%20draft%20directions%20on%20facilities%20for%20hedging%20foreign%20exchange%20risk%20by%20Residents%20and%20Non-residents%20(Amended).pdf) - Draft directions on facilities for hedging foreign exchange risk by Residents and Non-residents (Amended) was issued 6. [Dec 05, 2019](RBI_MPS_SDRP_20191205.pdf) - Draft directions were modified based on the feedback and the recommendations of the [Task Force on Offshore Rupee markets](https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=47839) (Chairperson: Smt. Usha Thorat) 1. Users may undertake over the counter (OTC) currency derivative transactions up to USD 10 million (compared to USD 1 million in draft directions), without the need to evidence underlying exposure. 7. [==April 7, 2020](RBI_Notification_20200407_Risk%20Management%20and%20Inter-bank%20Dealings%20–%20Hedging%20of%20foreign%20exchange%20risk.pdf) - Effective September 01, 2020, a [revised](RBI_Monthly_Bulletin_Article_20200813_Onshoring%20the%20Offshore.pdf#page=9&selection=73,13,73,36) (final directions) regulatory framework for hedging of foreign exchange risks was introduced.== 1. Before this, only contractual exposures could be hedged, the exception being hedging of exposures based on past performance. Now, the scope of participation in the foreign exchange markets has been expanded to include the hedging of anticipated exposures (like order confirmed but LC not issued yet by importer), of course subject to safeguards to prevent excessive speculation 8. [Dec 8, 2023](https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=56889) - RBI announced that revisions in the regulatory framework for hedging of foreign exchange risks would be issued soon. 9. ==[Jan 5, 2024](RBI_Notification_20240105_Risk%20Management%20and%20Inter-Bank%20Dealings%20–%20Hedging%20of%20foreign%20exchange%20risk.pdf) - the framework on forex risk management was further revised significantly== 10. Related Note - [Position limits](Currency%20Futures%20&%20Options.md#Position%20limits) for exposure in ETCD # Groups and Committees 1. 1993 - High-Level Committee on Balance of Payments (C. Rangarajan Committee) 2. 1997 - [Committee on Capital Account Convertibility, 1997](RBI_Group-Committee_199705_Committee%20on%20Capital%20Account%20Convertibility%20(1997)_Chairman-S.S.Tarapore_Tarapore%20Committee-1.pdf) (Chairman-S.S.Tarapore), also known as Tarapore Committee-1 3. Nov, 2005 - [Report](GoI_Reports_200511_Report%20of%20the%20Expert%20Group%20on%20%20Encouraging%20FII%20Flows%20and%20Checking%20the%20Vulnerability%20of%20Capital%20Markets%20to%20Speculative%20flows.pdf) of the Expert Group on Encouraging FII Flows and Checking the Vulnerability of Capital Markets to Speculative flows, *constituted by Ministry of Finance, Government of India* 4. 2006 - [Committee](RBI_Group-Committee_2006_Committee%20on%20Fuller%20Capital%20Account%20Convertibility_2006_Chairman-S.S.Tarapore_Tarapore%20Committee-2.pdf) on Fuller Capital Account Convertibility (Second Tarapore Committee) 5. 2009 - [Committee](RBI_Report-Committee_20080912_Committee%20on%20Financial%20Sector%20Reforms_2008_A%20Hundred%20Small%20Steps_Chairman-Raghuram%20Rajan.pdf) on Financial Sector Reforms (CFSR) titled *A Hundred Small Steps*, also known as Rajan Committee, 2009. 6. Aug 13, 2012 - [Working Group](RBI_Group-Committee_20120813_Report%20of%20the%20Working%20Group%20on%20Enhancing%20Liquidity%20in%20the%20Government%20Securities%20and%20Interest%20Rate%20Derivatives%20Markets.pdf) on Enhancing Liquidity in the Government Securities and Interest Rate Derivatives Markets *(RBI)*. 7. Sept 25, 2013 - SEBI DRG Study titled [Foreign Investment in Indian Government Bond Market](SEBI_20130925_DRG_Foreign%20Investment%20in%20Indian%20Government%20Bond%20Market.pdf) 8. June, 2014 - Arvind Mayaram [Committee](DEA_201406_Arvind%20Mayaram%20Committee%20on%20rationalizing%20the%20FDI%20FII%20definition.pdf) on rationalizing the FDI/FII definition *(Joint panel-Ministry of Finance, RBI, and SEBI)* 9. ==May 24, 2019 - SEBI released the final [report](SEBI_Reports_20190524_Working%20Group%20on%20SEBI%20(FPI)%20Regulations,%202014_Chairman-Harun%20R%20Khan.pdf) of H R Khan *(former deputy governor, RBI)* group on the SEBI (FPI) Regulations, 2014, that is to review the regulatory framework *(2014 FPI regulations)*== 10. Nov 20, 2020 - [Report](RBI_Group-Committee_20201120_Report%20of%20the%20Internal%20Working%20Group%20to%20Review%20Extant%20Ownership%20Guidelines%20and%20Corporate%20Structure%20for%20Indian%20Private%20Sector%20Banks.pdf) of the Internal Working Group to Review Extant Ownership Guidelines and Corporate Structure for Indian Private Sector Banks (Chairman - Shrimohan Yadav) *(RBI)* 11. 2023 - [Report](https://m.rbi.org.in/scripts/PublicationReportDetails.aspx?ID=1244) of the Inter-Departmental Group (IDG) on Internationalisation of INR 12. [August 8, 2019](RBI_Report_20190808_Report%20of%20the%20Task%20Force%20on%20Offshore%20Rupee%20Markets.pdf) - Task Force on Offshore Rupee Market (chaired by Usha Thorat) submitted its [report](RBI_Report_20190808_Report%20of%20the%20Task%20Force%20on%20Offshore%20Rupee%20Markets.pdf) to RBI. # Regulatory framework ## Rules 1. Foreign Investment *(non-debt in nature, that is an investment made by a person resident outside India on a repatriable basis in equity instruments of an Indian company or to the capital of an LLP, or on a non-repatriable basis in some cases for NRIs/OCIs)* in India (by non-residents) is regulated in terms of sub-section 2A of Section 6 and Section 47 of the Foreign Exchange Management Act, 1999 (FEMA) read with  1. *Non-Debt* - [FEM (Non-Debt Instruments) Rules, 2019](https://enforcementdirectorate.gov.in/media/fema/ab93a739-71e4-4db5-977d-d6652850de2d_Foreign%20Exchange%20Management%20(Non-Debt%20Instrument)%20Rules,%202019%20-%20without%20amendment_2.pdf). It has replaced the 1. [FEM (Acquisition and Transfer of Immovable Property in India) Regulations, 2018](https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11248&Mode=0) *(withdrawn)* 2. Rule 2(A) of NDI Rules empowers the Reserve Bank of India (RBI) to administer it, and while administering these rules, the RBI may interpret and issue such directions, circulars, instructions, clarifications, as it may deem necessary, for effective implementation of the provisions of these rules. 3. **Master Directions:** 1. *Non-Debt* - [Master Direction on Foreign Investment In India](https://www.rbi.org.in/scripts/bs_viewmasdirections.aspx?id=11200) dated [Jan 04, 2018](RBI_Notification_20180104_RBI issues Master Direction on Foreign investment in India.pdf), was issued to help with the implementation of the FEM NDI 1. It deals with any investment made by a person resident outside India on a repatriable basis in equity instruments of an Indian company or to the capital of an LLP, or on a non-repatriable basis in some cases for NRIs/OCIs. 2. A person resident outside India may hold foreign investment either as Foreign Direct Investment or as Foreign Portfolio Investment in any particular Indian company. 2. Rules, 2019. 1. Before this, there was [Master Circular on Foreign Investment in India dated July 01, 2015](RBI_Master%20Circular_20150701_Master%20Circular%20on%20Foreign%20Investment%20in%20India.pdf) and updated upto October 30, 2015 3. *Non-Debt* - [Master Direction-Acquisition or Transfer of Immovable Property under Foreign Exchange Management Act, 1999](https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=10196#F3) ## Regulations ### RBI Following regulations have been issued by RBI to regulate non-resident investment in debt (and also to non-debt where relevant) instruments in India 1. *Debt* - [FEM (Debt Instruments) Regulations, 2019](https://rbi.org.in/scripts/Bs_viewcontent.aspx?Id=4757) , dated October 17, 2019 1. It replaced the FEM (Transfer or Issue of Security by a Person Resident outside India) Regulations, [2017](https://rbi.org.in/scripts/NotificationUser.aspx?&Id=11253), dated November 7, 2017 , as amended from time to time 2. *Debt & Non-Debt* - [FEM (Permissible Capital Accounts Transactions) Regulations, 2000](https://www.rbi.org.in/Scripts/BS_FemaNotifications.aspx?Id=155), dated May 03, 2000, as amended from time to time 3. *Debt & Non-Debt* - [FEM (Deposit) Regulations, 2016](https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=10325), dated April 1, 2016, as amended from time to time. 4. *Debt* - [FEM (Borrowing and Lending) Regulations, 2018](https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11441), dated December 17, 2018, and as amended from time to time 1. This regulation governs all types of borrowing and lending transactions between a person resident in India and a person resident outside India, both in foreign currency and Indian Rupee. 2. It replaces the following: 1. FEM (Borrowing or lending in foreign exchange) [Regulations](https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=157&Mode=0), 2000, as amended from time to time. *(withdrawn)* 2. FEM (Borrowing and lending in rupees) [Regulations](https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=158&Mode=0), 2000, as amended from time to time. *(withdrawn)* 3. Regulation 21 of Foreign Exchange Management (Transfer or Issue of Any Foreign Security) (Amendment) [Regulations](https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=2126), 2004, as amended from time to time. *(withdrawn)* 5. **Master Directions** 1. ==*Debt* - [Reserve Bank of India (Non-resident Investment in Debt Instruments) Directions, 2025](https://rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=12765)== *It consolidates all the directions under the aforesaid regulations (above four) as also directions under Section 45W of the Reserve Bank of India Act, 1934, at various times relating to non-resident investment in debt instruments in India. 2. May 3, 2000 - [FEM (Permissible Capital Accounts Transactions) Regulations, 2000](https://rbi.org.in/scripts/NotificationUser.aspx?&Id=155), as amended from time to time 3. April 1, 2016 - [FEM (Deposit) Regulations, 2016](https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=10325), as amended from time to time. 4. December 17, 2018 - [FEM (Borrowing and Lending) Regulations, 2018](https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11441), as amended from time to time 5. October 17, 2019 - [FEM( Debt Instruments) Regulations, 2019](https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12099), as amended from time to time ### SEBI 1. FVCI - [Securities and Exchange Board of India (Foreign Venture Capital Investor) Regulations, 2000](https://www.sebi.gov.in/sebiweb/home/HomeAction.do?doListing=yes&sid=1&ssid=3&smid=0) 2. FPIs - [Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2019](https://www.sebi.gov.in/sebiweb/home/HomeAction.do?doListing=yes&sid=1&ssid=3&smid=0) 1. [REITs and INVITs](https://investor.sebi.gov.in/understanding_reit_invit.html) - Both are asset class, and are [regulated](https://www.sebi.gov.in/sebiweb/home/HomeAction.do?doListing=yes&sid=1&ssid=3&smid=0) by SEBI 2. Alternative Investment Funds - They are also [regulated](https://www.sebi.gov.in/sebiweb/home/HomeAction.do?doListing=yes&sid=1&ssid=3&smid=0) by SEBI 3. SEBI/Master Circulars 1. [Master Circular](https://www.sebi.gov.in/sebiweb/home/HomeAction.do?doListing=yes&sid=1&ssid=6&smid=0) for Foreign Portfolio Investors, Designated Depository Participants and Eligible Foreign Investors. 2. Master Circular for Stock Exchanges and Clearing Corporations *(ECTD is also covered here)* 3. Securities and Exchange Board of India (Issue and Listing of Non-Convertible Securities) Regulations, 2021 4. [SEBI Presentation](https://investor.sebi.gov.in/iematerial.html) 1. Investment by Non Resident Indians (NRIs) in Indian Securities Market ## Other Directions/Regulations 1. FEM (Guarantees) [Regulations-Draft](https://rbi.org.in/scripts/Bs_viewcontent.aspx?Id=4703), 2025. It replaces the following: 1. FEM (Guarantees) Regulations, 2000, as amended from time to time *(withdrawn)*. 2. [FEM (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019](https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11723&Mode=0), dated October 17, 2019, as amended from time to time 1. The instructions relating to mode of payment and reporting requirements for investment in India by a person resident outside India are contained in these regulations, which was made consequent to the Foreign Exchange Management (Non-Debt Instrument) Rules, 2019 2. [Master Direction – Reporting under FEMA, 1999](https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=10202) 3. ==Regulations/Directions for only [ECB, including Trade Credits](ECB%20(Borrowings%20in%20Rupee%20and%20FCY).md#^66f039)== 4. A non-resident *(other than 1.2)* may undertake transactions in *foreign exchange, interest rate and credit derivatives* in terms of the following Directions: 1. [Master Direction – Risk Management and Inter-Bank Dealings](https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=10485), dated July 05, 2016, as amended from time to time; 2. December 12, 2022 <span style="color:#0047AB;"><i>(Resident)</i></span> - [Master Direction – FEM (Hedging of Commodity Price Risk and Freight Risk in Overseas Markets) Directions, 2022](https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=12427) 3. [Reserve Bank of India (Margin for Derivative Contracts) Directions, 2024 ](https://rbi.org.in/scripts/NotificationUser.aspx?&Id=12683), dated May 08, 2024 1. The above 3 Master Directions contains instructions issued in respect of Foreign Exchange Derivative Contracts, Overseas Commodity & Freight Hedging, Rupee Accounts of Non-Resident Banks and Inter-Bank Foreign Exchange Dealings etc., and are governed by the following regulations: 1. December 17, 2018 - [FEM (Borrowing and Lending) Regulations, 2018](https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11441), as amended from time to time 2. May 03, 2000 - [FEM (Permissible Capital Accounts Transactions) Regulations, 2000](https://www.rbi.org.in/Scripts/BS_FemaNotifications.aspx?Id=155), as amended from time to time 3. May 3, 2020 - [FEM (Foreign Exchange Derivative Contracts) Regulations, 2000](https://rbi.org.in/Scripts/NotificationUser.aspx?Id=12100&Mode=0), as amended from time to time 4. [Master Direction – Reserve Bank of India (Rupee Interest Rate Derivatives) Directions, 2025](https://rbi.org.in/scripts/FS_Notification.aspx?Id=13214&fn=6&Mode=0) 1. [Rupee Interest Rate Derivatives (Reserve Bank) Directions, 2019](https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11602&Mode=0), dated June 26, 2019, as amended from time to time *(withdrawn)* 5. [Master Direction – Reserve Bank of India (Credit Derivatives) Directions, 2022](https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=12226), dated February 10, 2022, as amended from time to time, read with on [Transactions in Credit Default Swap (CDS) by Foreign Portfolio Investors (issued on February 10, 2022)](https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12227&Mode=0) – Operational Instructions, as amended from time to time. 6. Foreign Exchange Dealings of Authorised Persons 1. [Feb 17, 2026](RBI_Press Release_20260217_RBI releases draft Directions on Foreign Exchange Dealings of Authorised Persons.pdf) - draft Directions on Foreign Exchange Dealings of Authorised Persons 2. Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000 dated May 03, 2000 ([Notification No. FEMA.25/RB-2000 dated May 03, 2000](https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=179&Mode=0)), as amended from time to time and the 3. Instructions contained in Part A (Section III) and Part C of the [Master Direction – Risk Management and Inter-Bank Dealings dated July 05, 2016](https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=10485), as amended from time to time. 4.  [Master Direction – Reserve Bank of India (Market-makers in OTC Derivatives) Directions, 2021](https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=12163) # Data Releases 1. Investments limits are announced in the first week of April for the two halves of the financial year (April-September and October-March) through a notification titled 'Limits for investment in debt and sale of Credit Default Swaps by Foreign Portfolio Investors (FPIs)'. 2. FDI - Annual Report 3. FPI data is maintained by both CDSL and NSDL 1. [NDSL](https://www.fpi.nsdl.co.in/Reports/ReportsListing.aspx) - It is maintained and monitored by the NSDL, which acts on behalf of the SEBI 4. SEBI Monthly Bulletin 5. SEBI -Annual Report (August every year) # References ### [[Speeches & Media Interactions|Speeches]] Sankar, T. R (2021, Oct 14). *India’s Capital Account Management – An assessment* \[Speech\]. Fifth Foreign Exchange Dealers’ Association of India (FEDAI) Annual Day on October 14th, 2021. Reserve Bank of India. [Link](https://rbi.org.in/scripts/BS_ViewBulletin.aspx?Id=20627) 1. RBI. (1998, June 30). *Annual Report of RBI 1997-1998*. [Link](https://rbi.org.in/scripts/AnnualReportPublications.aspx?Id=514) 2. H. R. Khan. (2014, May 12). *Regulating Capital Account: Some Thoughts* \[Speech\]. 9th Annual Conference of the Foreign Exchange Dealers Association of India (FEDAI). Reserve Bank of India. [Link](https://rbi.org.in/scripts/BS_ViewBulletin.aspx?Id=14902) 3. RBI. (2012, Aug 13). [Report](https://rbi.org.in/scripts/PublicationReportDetails.aspx?ID=677#f2) of the Working Group on Enhancing Liquidity in the Government Securities and Interest Rate Derivatives Markets 4. Harun R. Khan. (2012, October 18). _Managing currency and interest rate risks – New challenges for banks & corporates_ \[Speech\]. 2nd FT-Yes Bank International Banking Summit, Mumbai. RBI. [Link](https://rbi.org.in/scripts/BS_SpeechesView.aspx?Id=744) 5. RBI. (2014, March 10). *Foreign Portfolio Investor - investment under Portfolio Investment Scheme, Government and Corporate debt* \[Notification\]. [Link](https://rbi.org.in/scripts/NotificationUser.aspx?Mode=0&Id=8787) | [[RBI_Notification_20140325_‘Foreign Portfolio Investment’ scheme.pdf|pdf]] 6. Harun R Khan. (2014, November 10). *Indian Foreign Exchange Market: Recent Developments and the Road Ahead - Inaugural address* \[Speech\]. 25th Annual Forex Assembly organized by the Forex Association of India (FAI) at Gurgaon. [Link]((https://rbi.org.in/scripts/BS_SpeechesView.aspx?Id=919) | [[RBI_Speech_20141110_Indian Foreign Exchange Market- Recent Developments and the Road Ahead_Harun R. Khan.pdf|pdf]] 7. RBI. (2015). *Report on Debt Management Strategy for India*. [Link](https://rbi.org.in/scripts/PublicationReportDetails.aspx?UrlPage=&ID=837) 8. RBI. 2016. Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) (Third Amendment) [Regulations](https://rbi.org.in/Scripts/NotificationUser.aspx?Id=10386&Mode=0), 2016 notified vide [Notification No. FEMA 363/2016-RB dated April 28, 2016](https://rbi.org.in/Scripts/NotificationUser.aspx?Id=10386&Mode=0), vide G.S.R. No.465(E) dated April 28, 2016. 9. Viral V. Acharya. (2017, December 14). _Global spillovers: Managing capital flows and forex reserves._ Keynote address at the NSE-NYU Conference on Indian Financial Markets, Mumbai, India. [Link](https://rbi.org.in/scripts/BS_SpeechesView.aspx?Id=1051) | [[RBI_Speech_20171214_Global spillovers- Managing capital flows and forex reserves.pdf|pdf]] 10. RBI. 2019. Foreign Exchange Management (Debt Instruments) [Regulations](https://rbi.org.in/scripts/BS_FemaNotifications.aspx?Id=12099), 2019. 11. RBI. 2019. Foreign Exchange Management (Non-Debt Instruments) [Rules](https://incometaxindia.gov.in/Documents/Provisions%20for%20NR/FEM-Non-debt-Instruments-Rules-2019.htm), 2019 12. RBI introduces the [[External Sector - VRR - Foreign Portfolio Investment (FPI) in Indian Debt Market|Voluntary Retention Route]] for Investments by Foreign Portfolio Investors (FPIs) - Voluntary Retention Route - [March 01, 2019](https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=46444) 13. RBI. (2020, March 30). Fully Accessible Route’ for Investment by Non-residents in Government Securities - [March 30, 2020](https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11849&Mode=0) 14. RBI. [Master](https://rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=12765) Direction - Reserve Bank of India (Non-resident Investment in Debt Instruments) Directions, 2025 15. Padmanabhan, G (2015, May 18). *Is India ready for full Capital Account Convertibility?* \[Speech\]. MSNM Besant Institute of PG Management Studies, Mangalore. [Link](https://rbi.org.in/scripts/BS_SpeechesView.aspx?Id=956) ### Others 1. IGNOU. (n.d.). [Unit 9: Capital account convertibility and exchange rate management](https://egyankosh.ac.in/bitstream/123456789/19202/1/Unit-9.pdf). eGyanKosh. 2. Ila P, Sarat M, Radhika P, Prateek. (25 Sept 2013). Foreign investment in the Indian Government bond market. [SEBI-DRG](https://www.sebi.gov.in/sebi_data/attachdocs/1380539201612.html). [pdf](SEBI_DRG_201309_Foreign%20investment%20in%20the%20Indian%20Government%20bond%20market.pdf) 3. Rangarajan, C. (2015, March 13). _Issues in India’s external sector_ (5th Raja Chelliah Memorial Lecture, Raja Chelliah Memorial Lecture Series). National Institute of Public Finance and Policy (An autonomous research institute under the Ministry of Finance). [Link](https://www.nipfp.org.in/cms-index-page/publications/raja-chelliah-lectures/) | [pdf](NIPFP_20150313_Issues%20in%20India’s%20external%20sector_C%20Rangarajan.pdf) 4. Payal Ghose and Abhishek Date. (Nov 2022). Green Bonds Moving Towards Sustainable Finance. CCIL Rakshitra 5. DPIIT. [FDI Policy](https://dpiit.gov.in/foreign-direct-investment/foreign-direct-investment-policy). Ministry of Commerce & Industry, Government of India. Retrieved August 6, 2025. 6. Payal Ghose and Abhishek Date. (Feb 2026). Frontrunner to Backburner – Status Update on Indian Sovereign Green Bonds. CCIL's Monthly Newsletter Rakshitra. [pdf](CCIL_Rakshitra_202602_Frontrunner%20to%20Backburner–%20Status%20Update%20on%20Indian%20Sovereign%20Green%20Bonds.pdf) 7. Investments by Non-resident Indians (NRIs) under Portfolio Investment Scheme (PIS). [Link]() [^1]: Shri. G Padmanabhan (ex-Executive Director, RBI). (2015, April 3). *Musings of a Departing Forex Market Regulator* \[Speech\]. Foreign Exchange Dealers Association of India (FEDAI) Conference at Brussels. RBI. [Link](https://rbi.org.in/scripts/BS_SpeechesView.aspx?Id=953) | [pdf](RBI_Speech_20150406_Musings%20of%20a%20Departing%20Forex%20Market%20Regulator_G%20Padmanabhan_06042015.pdf) [^2]: Harun R Khan (ex-Deputy Governor of RBI). (2016, June 11). *Foreign Exchange Market & Cross-border Transactions: Some Random Reflections* \[Speech\]. 11th Annual Conference of the Foreign Exchange Dealers Association of India (FEDAI), Hong Kong. RBI. [Link](https://rbi.org.in/scripts/BS_SpeechesView.aspx?Id=1008)| [pdf](RBI_Speeches_20160621_RBI_Speech_20160611_Foreign%20Exchange%20Market%20&%20Cross-border%20Transactions-%20Some%20Random%20Reflections.pdf) [^3]: Harun R Khan (ex-Deputy Governor, RBI). (2014, November 10). *Indian Foreign Exchange Market: Recent Developments and the Road Ahead - Inaugural address* \[Speech\]. 25th Annual Forex Assembly organized by the Forex Association of India (FAI) at Gurgaon. [Link]((https://rbi.org.in/scripts/BS_SpeechesView.aspx?Id=919) | [[Indian Foreign Exchange Market- Recent Developments and the Road Ahead_Harun R. Khan_RBI_10112014.pdf|pdf [^4]: Y.V. Reddy. (2002, May 10). *India’s Foreign Exchange Reserves : Policy, Status and Issues*. National Council of Applied Economic Research, New Delhi. [Link](https://rbi.org.in/scripts/BS_SpeechesView.aspx?Id=109) | [pdf](RBI_Speech_20020510_India’s%20Foreign%20Exchange%20Reserves%20-%20Policy,%20Status%20and%20Issues%20by%20Y.V.%20Reddy_.V.%20Reddy.pdf) [^5]: RBI. (2015). *Report on Debt Management Strategy for India*. [Link](](https://rbi.org.in/scripts/PublicationReportDetails.aspx?UrlPage=&ID=837)