Main Note - [2. Foreign Venture Capital Investment - FVCI (Debt or Equity, in Rupee)](Foreign%20Investment%20in%20India%20(Various%20Routes).md#2.%20Foreign%20Venture%20Capital%20Investment%20-%20FVCI%20(Debt%20or%20Equity,%20in%20Rupee)) in [Foreign Investment in India (Various Routes)](Foreign%20Investment%20in%20India%20(Various%20Routes).md) Foreign Venture Capital Investment-FVCI (Debt or Equity, in Rupee) is one of the routes prescribed under FEMA (Foreign Exchange Management Act), regulated by SEBI/RBI, by which foreign investors (non-persons, that is., institutional entities/funds) can invest in debt & equity in India. 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 The FEM (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000 were superseded by the 2017 Regulations, which were subsequently amended until 2019. >[!important] 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. <span style="background-color:#F0FFFF;">Thus, FPI can invest in debt through FPI route or ECB or Foreign Venture Capital Investment (debt or equity).</span> ## Related Notes 1. [Foreign Investment in India (Various Routes)](Foreign%20Investment%20in%20India%20(Various%20Routes).md) ## References 1. [References](Foreign%20Investment%20in%20India%20(Various%20Routes).md#References)