Investment in India for other than Capital Instruments

Key Terms

Below are the related key terms for Investment in India for other than Capital Instruments:

‘Capital Instruments’ are equity shares, debentures, preference shares and share warrants issued by an Indian company.

‘Foreign Portfolio Investor (FPI)’ is a person registered in accordance with the provisions of Securities Exchange Board of India (Foreign Portfolio Investors) Regulations, 2014.

‘Investment on repatriation basis’ is an investment, the sale/ maturity proceeds of which are, net of taxes, eligible to be repatriated and the expression ‘Investment on non­repatriation basis’, will be construed accordingly.

‘Listed Indian Company’ is an Indian company which has any of its capital instruments listed on a recognized stock exchange in India and the expression ‘Unlisted Indian Company’ shall be construed accordingly

‘Non-Resident Indian (NRI)’ is an individual resident outside India who is citizen of India.

‘Overseas Citizen of India (OCI)’ is an individual resident outside India who is registered as an Overseas Citizen of India Cardholder under Section 7(A) of the Citizenship Act, 1955.

Permission to Foreign Portfolio Investors (FPIs) for Investment in India for other than Capital Instruments

Instruments Permitted for Purchase on Repatriation Basis

An FPI is permitted to purchase the following instruments on repatriation basis subject to the terms and conditions specified by the Securities and Exchange Board of India and the Reserve Bank:

(a) Dated Government securities/ treasury bills.

  • With effect from July 23, 2014, FPIs are not allowed to invest in treasury bills.
  • FPIs are required to invest in Government securities with a minimum residual maturity of three years. There is, however, no lock-in period and FPIs are free to sell the securities to the domestic investors.
  • FPIs can invest in government securities, the coupons received on their existing investments in government securities. These investments will be outside the applicable limit for investments by FPIs in government securities.

(b) Commercial papers issued by an Indian company. FPIs are not be allowed to make any further investment in CPs after February 03, 2015.

(c) Units of domestic mutual funds. FPIs are not permitted to make investment in liquid and money market mutual fund schemes.

(d) Perpetual Debt instruments eligible for inclusion as Tier I capital and Debt capital instruments as upper Tier II capital issued by banks in India to augment their capital (Tier I capital and Tier II capital as defined by Reserve Bank) provided that the investment by all eligible investors in Perpetual Debt instruments (Tier I) shall not exceed an aggregate ceiling of 49 percent of each issue and investment by a single FPI shall not exceed the limit of 10 percent of each issue.

(e) Non-convertible debentures/ bonds issued by an Indian company.

  • All investments made by an FPI after February 03, 2015, within the limit for investment in corporate bonds, will have to be made in corporate bonds with a minimum residual maturity of three years. In addition, investments made after February 03, 2015 against the limits vacated when the current investment runs off either through sale or redemption, has to be made in corporate bonds with a minimum residual maturity of three years. There will, however, be no lock-in period and FPIs can sell the securities (including those that are presently held with less than three years residual maturity) to domestic investors.
  • FPIs can invest in primary issues of Non-Convertible Debentures (NCDs)/ bonds only if listing of such bonds/ NCDs is committed to be done within 15 days of such investment. In case the NCDs/ bonds issued to the FPIs are not listed within 15 days of issuance to the FPIs, for any reason, then the FPIs shall immediately dispose of these bonds/ NCDs either by way of sale to a third party or to the issuer. The terms of offer to FPIs should contain a clause that the issuer of such debt securities shall immediately redeem/ buyback the said securities from the FPIs in such an eventuality.
  • FPIs are permitted to invest in unlisted NCDs/ bonds issued by an Indian company subject to a minimum residual maturity of three years and end-use restriction on investment in real estate business, capital market and purchase of land. The custodian banks shall ensure compliance with this condition.

(f) Non-convertible debentures/ bonds issued by Non-Banking Financial Companies categorized as ‘Infrastructure Finance Companies’(IFCs) by the Reserve Bank. This will include such instruments issued on or after November 3, 2011 and held by deemed FPIs.

(g) Rupee denominated bonds/ units issued by Infrastructure Debt Funds. This will include such instruments issued on or after November 22, 2011 and held by deemed FPIs.

(h) Credit enhanced bonds.

(i) Listed non-convertible/ redeemable preference shares or debentures issued in terms of Regulation 9 of FEMA 20(R).

(j) Security Receipts (SRs) issued by Asset Reconstruction Companies and securitization companies subject to directions/ guidelines of the Reserve Bank [Department of Non-Banking Regulations (DNBR)] and the following conditions:

  • FPIs can invest up to 100 per cent of each tranche in SRs issued by ARCs, subject to provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.
  • The restriction on investments with less than three years residual maturity is not applicable to investment by FPIs in SRs issued by ARCs.
  • Such investment should be within the FPI limits on corporate bonds prescribed by the Reserve Bank.
  • Investment by FPIs in the unlisted corporate debt securities and securitised debt instruments shall not exceed investment limits prescribed for corporate bonds from time to time.

(k) Securitised debt instruments, including (i) any certificate or instrument issued by a special purpose vehicle (SPV) set up for securitisation of asset/s with banks, Financial Institutions or NBFCs as originators; and/ or (ii) any certificate or instrument issued and listed in terms of the Securities and Exchange Board of India (Regulations on Public Offer and Listing of Securitised Debt Instruments), 2008.

(l) FPI can acquire NCDs/ bonds, which are under default, either fully or partly, in the repayment of principal on maturity or principal instalment in the case of amortising bond. The revised maturity period of such NCDs/ bonds, restructured based on negotiations with the issuing Indian company, should be three years or more. The FPI should disclose to the Debenture Trustees the terms of the offer made to the existing debenture holders/ beneficial owners from whom the bonds are being acquired. Such investment should be within the overall limit prescribed for corporate debt from time to time.

Instruments as collateral to the recognized Stock Exchanges

FPIs can offer the following instruments as collateral to the recognized Stock Exchanges in India for their transactions in exchange traded derivative contracts:

  1. domestic Government Securities (acquired in accordance with the provisions of Schedule 5 to FEMA 20(R) and subject to the overall limits specified by the SEBI from time to time);
  2. foreign sovereign securities with AAA rating;
  3. corporate bonds acquired by FPIs in accordance with provisions of Schedule 5 to FEMA 20(R);
  4. cash

Note: Cross-margining of Government Securities (placed as margins by the FPIs for their transactions in the cash segment of the market) is not allowed between the cash and the derivative segments of the market.

Permission to Non-resident Indians (NRIs) or Overseas Citizens of India (OCIs) on Repatriation basis for Investment in India for other than Capital Instruments

A Non-resident Indian (NRI) or an Overseas Citizen of India (OCI) can, without limit, purchase the following instruments on repatriation basis:

  1. Government dated securities (other than bearer securities) or treasury bills or units of domestic mutual funds;
  2. Bonds issued by a Public Sector Undertaking (PSU) in India;
  3. Shares in Public Sector Enterprises being disinvested by the Central Government, provided the purchase is in accordance with the terms and conditions stipulated in the notice inviting bids;
  4. Bonds/ units issued by Infrastructure Debt Funds;
  5. Listed non-convertible/ redeemable preference shares or debentures issued in terms of FEMA Regulation.

A NRI or an OCI can purchase on repatriation basis perpetual debt instruments eligible for inclusion as Tier I capital and Debt capital instruments as upper Tier II capital issued by banks in India to augment their capital, as stipulated by Reserve Bank.

The investments by all NRIs or OCIs in Perpetual Debt Instruments (Tier I) should not exceed an aggregate ceiling of 24 percent of each issue and investments by a single NRI or OCI should not exceed 5 percent of each issue. Investment by NRIs or OCIs in Debt Capital Instruments (Tier II) shall be accordance with the extant policy for investment by NRIs or OCIs in other debt instruments.

A NRI may subscribe to National Pension System governed and administered by Pension Fund Regulatory and Development Authority (PFRDA), provided such person is eligible to invest as per the provisions of the PFRDA Act, 2013. The annuity/ accumulated saving will be repatriable.

NRIs/ OCIs can offer instruments as may be specified by the Reserve Bank or SEBI as collateral to the recognized Stock Exchanges in India for their transactions in exchange traded derivative contracts,

Permission to Non-resident Indians (NRIs) or Overseas Citizens of India (OCIs) on Non-Repatriation basis

A NRI or an OCI can, without limit, purchase on non-repatriation basis, dated Government securities (other than bearer securities), treasury bills, units of domestic mutual funds, units of Money Market Mutual Funds, or National Plan/ Savings Certificates.

A NRI or an OCI can, without limit, purchase on non-repatriation basis, listed non-convertible/ redeemable preference shares or debentures issued in terms of Regulation 9 of FEMA 20(R).

A NRI or an OCI can, without limit, on non-repatriation basis subscribe to the chit funds authorised by the Registrar of Chits or an officer authorised by the State Government in this behalf.

Permission to Foreign Central Banks or a Multilateral Development Bank for Purchase of Government Securities

A Foreign Central Bank can purchase and sell dated Government securities/ treasury bills in the secondary market subject to conditions as may be prescribed by the Reserve Bank.

A Foreign Central Bank, may purchase and sell dated Government securities/ treasury bills subject to conditions as may be prescribed by the Reserve Bank.

A Multilateral Development Bank which is specifically permitted by Government of India to float rupee bonds in India can purchase Government dated securities subject to conditions as may be prescribed by the Reserve Bank.

Permission to other Non-Resident Investors for Purchase of Securities

Long term investors like Sovereign Wealth Funds (SWFs), Multilateral Agencies, Endowment Funds, Insurance Funds, Pension Funds which are registered with Securities and Exchange Board of India as eligible investors in Infrastructure Debt Funds can purchase on repatriation basis Rupee Denominated bonds/ units issued by Infrastructure Debt Funds.

Long term investors like Sovereign Wealth Funds (SWFs), Multilateral Agencies, Endowment Funds, Insurance Funds, Pension Funds and Foreign Central Banks registered with Securities and Exchange Board of India can purchase, on repatriation basis the following instruments and subject to limits prescribed by the Reserve Bank and terms and conditions specified by SEBI and the Reserve Bank:

  • Dated Government securities/ treasury bills. With effect from July 23, 2014, long term investors are not allowed to invest in treasury bills.
  • Commercial papers issued by an Indian company. With effect from February 03, 2015, long term investors are not allowed to make any further investment in CPs.
  • Units of domestic mutual funds. Long term investors are not allowed to make any further investment in CPs after February 03, 2015.
  • perpetual debt instruments eligible for inclusion as Tier I capital and debt capital instruments as upper Tier II capital issued by banks in India to augment their capital (Tier I capital and Tier II capital as defined by Reserve Bank) provided that the investment by all eligible investors in Perpetual Debt instruments (Tier I) shall not exceed an aggregate ceiling of 49 percent of each issue, and investment by a single long term investor shall not exceed the limit of 10 percent of each issue.
  • Listed non-convertible debentures/ bonds issued by an Indian company.
  • Listed and unlisted non-convertible debentures/ bonds issued by an Indian company in the infrastructure sector. The term ‘Infrastructure Sector’ has the same meaning as given in the Harmonised Master List of Infrastructure sub-sectors approved by Government of India vide Notification F. No. 13/06/2009-INF dated March 27, 2012 as amended/ updated.
  • non-convertible debentures/ bonds issued by Non-Banking Finance Companies categorized by the Reserve Bank as ‘Infrastructure Finance Companies (IFCs)’.
  • primary issues of non-convertible debentures/ bonds provided such non-convertible debentures/ bonds are committed to be listed within 15 days of such investment. In the event of the instruments not being listed within 15 days of issuance then the long term investor shall immediately dispose such instruments by way of sale to a third party or to the issuer. The terms of offer to the long term investors should contain a clause that the issuer of such instruments shall immediately redeem/ buyback those securities from the long term investors in such an eventuality;
  • credit enhanced bonds;
  • listed non-convertible/ redeemable preference shares or debentures issued in terms of Regulation 9 FEMA 20(R);
  • security Receipts (SRs) issued by Asset Reconstruction Companies up to 100 percent of each tranche, subject to directions/ guidelines of the Reserve Bank [Department of Non-Banking Regulations (DNBR)]
  • security receipts (SRs) issued by securitization companies

Mode of Payment for Investment in India for other than Capital Instruments

Foreign Portfolio Investors (FPIs)

The amount of consideration for purchase of instruments by FPIs should be received from abroad through banking channels or paid out of funds held in a foreign currency account and/ or Special Non-Resident Rupee (SNRR) account maintained in accordance with the Foreign Exchange Management (Deposit) Regulations, 2016. The foreign currency account and SNRR account shall be used only and exclusively for transactions under this Annex.

NRIs/OCIs on Repatriation Basis

The amount of consideration for purchase of instruments by NRIs or OCIs on repatriation basis should be received from abroad through banking channels or paid out of funds held in NRE/ FCNR(B) account maintained in accordance with the Foreign Exchange Management (Deposit) Regulations, 2016.

NRIs/OCIs on Non-Repatriation Basis

The amount of consideration for (a) purchase of instruments by NRIs or OCIs on non-repatriation basis and (b) subscriptions to the National Pension System by NRIs should be received from abroad through banking channels or paid out of funds held in NRE/ FCNR(B)/ NRO account maintained in accordance with the Foreign Exchange Management (Deposit) Regulations, 2016.

Foreign Central Banks/Multilateral Development Bank

The amount of consideration for purchase of Government dated securities by a Foreign Central Bank or a Multilateral Development Bank should be received from abroad through banking channels or paid out of funds held in an account opened with the specific approval of the Reserve Bank.

Other Non-Resident Investors

The amount of consideration for purchase of instruments by other non-resident investors should be received from abroad through banking channels.

Permission for Sale of instruments for Investment in India for other than Capital Instruments

A person resident outside India who has purchased instruments in accordance with FEMA Regulations can sell/ redeem the instruments.

Remittance/Credit of Sale/Maturity Proceeds for Investment in India for other than Capital Instruments

Foreign Portfolio Investors (FPIs)

The sale/ maturity proceeds (net of taxes) of instruments held by Foreign Portfolio Investors (FPIs) can be remitted outside India or credited to the foreign currency account or SNRR account of the FPI.

NRIs/OCIs

The sale/ maturity proceeds (net of taxes) of instruments held by NRIs or OCIs, can be:

  • Credited to the NRO account of the person concerned where the instruments were held on non-repatriation basis, or
  • Credited to the NRO account of the person concerned where the payment for the purchase of the instruments sold was made out of funds held in NRO account, or
  • Remitted abroad or at the NRI/ OCI investor’s option, credited to his NRE/ FCNR(B)/ NRO account, where the instruments were purchased on repatriation basis.

Other Cases

In all other cases, the sale/ maturity proceeds (net of taxes) can be remitted abroad or credited to an account opened with the prior permission of the Reserve Bank.


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