Overseas Direct Investment (ODI)
Investment in unlisted foreign entity by way of acquisition of equity capital or subscription as a part of the Memorandum of Association of the foreign entity (irrespective of % stake), or Investment in listed foreign entity where the stake if 10% or more of the paid-up equity capital, or Investment with control* where investment is less than 10% of the paid-up equity capital of a listed foreign entity
*Control: The right to appoint a majority of the directors or control management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders agreement or voting agreements that entitle them to 10% or more of voting rights or in any other manner in the entity.
Permissible investors under automatic route
An Indian entity which is defined as a ‘Company defined under the Companies Act, 2013 or a body corporate incorporated by any law for the time being in force or a Limited Liability Partnership (LLP) formed under the Limited Liability Partnership Act, 2008 or a partnership firm registered under the Indian Partnership Act, 1932’ and Resident Individuals.
Financial commitment
Financial commitment by a person resident in India means the aggregate amount of investment by way of investment into equity capital, debt other than Overseas Portfolio Investment (OPI) and non-fund based facility or facilities extended by it to all foreign entities. Resident Individuals are permitted only to make investment in equity capital of overseas entities.
Permissible limits
Financial commitment shall not exceed 400% of net worth as per the last audited balance sheet (not more than 18 months preceding the date of transaction) or USD 1 (one) billion (or its equivalent) in a financial year, whichever is lower. Any resident individual may make ODI by way of investment in equity capital or OPI in the manner provided in Schedule III of subject to the overall ceiling under the Liberalized Remittance Scheme i.e. USD 250,000 per annum.
Prohibited sectors
Real estate activity, gambling in any form, dealing with financial products linked to the Indian Rupee without having specific approval of the Reserve Bank of India. In addition to these, Resident Individuals are not allowed to invest in financial sectors and set up any Step-Down Subsidiary (SDS).
FAQs
What is Overseas Portfolio Investment (OPI)?
- Investments other than Overseas Direct Investment (ODI) in foreign securities, but not in any unlisted debt instruments or any security issued by a person residing in India who is not in an International Financial Services Centre (IFSC)
- The investment (including sponsor contribution) in units of any investment fund overseas, duly regulated by the regulator for the financial sector in the host jurisdiction will be considered as OPI
- Shares or interest acquired by the resident individuals by way of Sweat Equity Shares, Minimum Qualification Shares or under Employee Stock Ownership Plan (ESOP)/ Employee Benefits Scheme up to 10% of the paid-up capital/stock, whether listed or unlisted, of the foreign entity and without control will also qualify as OPI
- Any investment made overseas according to schedule IV of the Overseas Investment (OI) Rules in securities as stipulated by the Securities and Exchange Board of India (SEBI) by Mutual Funds (MFs), Venture Capital Funds (VCFs) and Alternative Investment Funds (AIFs) registered with SEBI, will be considered as OPI.
Explanation:
- Provided that ODI by a person residing in India in the equity capital of a listed entity, even after its delisting, will continue to be treated as ODI until any further investment is made in the entity
- Once an investment in a foreign entity is classified as ODI, the investment will continue to be treated as ODI, even if such investment falls below 10% of the paid-up equity capital or if the investor loses control in the foreign entity.
What is Equity Capital?
Equity Capital means equity shares, perpetual capital or instruments that are irredeemable or contribution to non-debt capital of a foreign entity, which are fully and compulsorily convertible instruments. Accordingly, any instrument, which is redeemable, non-convertible or optionally convertible, will be treated as debt for the purpose of OI Rules/Regulations/Directions.
What is Financial Commitment?
The aggregate amount of investment made by a person residing in India by way of Overseas Direct Investment, debt other than Overseas Portfolio Investment in foreign entities. It will include non-fund based facilities extended by such person to or on behalf of such foreign entity or entities.