RBI plans unified code for foreign investment in equity instruments
Mumbai: The Reserve Bank of India (RBI) Tuesday proposed replacing a seven-year-old set of rules with a single framework that would govern overseas fund flows
Mumbai: The Reserve Bank of India (RBI) Tuesday proposed replacing a seven-year-old set of rules with a single framework that would govern overseas fund flows into equity instruments across companies, limited liability partnerships, and specialized investment vehicles.The Foreign Exchange Management (Foreign Investment) Rules, 2026, seeks to replace the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019. The new set of draft norms, published Tuesday, listed entities eligible to receive foreign investment, defined foreign-controlled entities (FCEs), consolidated provisions governing entry routes, sectoral caps and pricing, and incorporated the framework for direct listing of Indian companies on overseas stock exchanges.The RBI would administer the rules, while the Department for Promotion of Industry and Internal Trade (DPIIT) would continue to interpret foreign investment policy provisions, the banking regulator said.The draft retains the distinction between foreign direct investment (FDI) and foreign portfolio investment (FPI).
Investments of 10% or more in the equity of a company or LLP will continue to be classified as FDI, while holdings below 10% will be treated as FPI.The draft allows FPI to be reclassified as FDI if an investor's holding reaches 10% or more, subject to regulatory conditions. 132549081The draft defines eligible investee entities to include companies, LLPs, investment vehicles such as REITs, InvITs, AIFs and venture capital funds, as well as mutual funds and exchange-traded funds that invest more than 50% in equity.Partnership firms and proprietary concerns are also included within the framework.Read more: FPIs stay in buying mode, consumer services lead sectoral inflows in first half of JulyThe draft defines foreign investment in equity to include both direct investments by overseas investors and indirect investments routed through foreign-controlled entities or other overseas entities under common ownership or control.It defines ownership as beneficial holding of more than 50% and control as the ability to appoint a majority of directors or influence management or policy decisions, including through agreements conferring 10% or more voting rights.The draft defines foreign-controlled entities (FCEs) as resident companies, LLPs and investment vehicles owned or controlled by overseas investors, and permits them to make investments subject to sector-specific conditions under the foreign investment policy.The draft permits foreign investment through subscriptions, purchases, gifts, pledges, depository receipts and share swaps.
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