Calculate your SIP ReturnsExplore

RBI’s Game-Changing Move: Easier Overseas Investments for Indians!

10 June 20244 mins read by Angel One
RBI eases overseas investment rules, allowing more flexibility for Indian entities to invest in global funds, boosting opportunities in GIFT City.
RBI’s Game-Changing Move: Easier Overseas Investments for Indians!
ShareShare on 1Share on 2Share on 3Share on 4Share on 5

The Reserve Bank of India (RBI) has introduced new regulations that simplify the process for Indian companies and individuals to invest in offshore funds. This move is aimed at encouraging more international investments by providing greater flexibility and removing previous restrictions. Here’s a breakdown of the new rules and what they mean for investors.

Key Changes in Investment Rules

  1. Investment Flexibility: The RBI now allows listed Indian companies and resident individuals to invest in offshore funds managed by regulated fund managers. These investments can be made in any form of financial instrument, including funds structured as limited partnerships, limited liability companies (LLCs), variable capital companies (VCCs), corporations, or trusts.
  2. Previous Restrictions: Before these changes, overseas portfolio investment (OPI) was only permitted if the offshore funds were regulated in their home jurisdiction and the investments were in the form of ‘units’ of these funds. This restriction posed challenges because many offshore funds are structured as corporate bodies issuing shares or partnership interests, not just trusts issuing units.
  3. Challenges Faced: Due to the language of the overseas investment framework introduced in 2022, authorized dealer banks started limiting OPIs to only those securities issued as units. Furthermore, remittances were only allowed if the fund itself was directly regulated. This restriction created problems for Indian Limited Partners (LPs) who had already committed capital to offshore funds before the 2022 framework was introduced.
  4. Solutions Provided: To circumvent these issues, new funds had to be set up in jurisdictions like the Cayman Islands, Mauritius, or GIFT City to ensure compliance with Indian regulations. The recent changes by the RBI now allow general partners to establish their funds in commercially favorable jurisdictions without worrying about Indian investment restrictions.
  5. Fund Manager Regulation: This flexibility is particularly important as financial services regulators in jurisdictions like Singapore and the United States regulate the fund manager rather than the fund itself. This means that Indian investors can now invest in funds managed by regulated managers, regardless of the fund’s structure.

New Opportunities for Unlisted Entities

  1. Investment in IFSC Funds: The RBI has also allowed unlisted Indian entities, including companies, Limited Liability Partnerships (LLPs), and registered partnerships, to invest in International Financial Services Centre (IFSC) funds under the OPI route. These entities can invest up to 50% of their last audited net worth into funds registered in the IFSC.
  2. Broader Investment Scope: Previously, only resident individuals and listed Indian companies were permitted to make new OPIs in overseas companies or funds under Schedule II of the Overseas Direct Investment (ODI) regulations. The recent amendments now allow unlisted Indian entities to invest in IFSC funds, boosting fundraising activities in GIFT City for overseas investments.

These regulatory changes by the RBI are expected to significantly enhance fundraising efforts in GIFT City, providing a more conducive environment for offshore investments. The ability for unlisted entities to invest in IFSC funds opens up new avenues for capital commitment, making it easier for Indian investors to participate in global markets.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.

Open Free Demat Account!

Enjoy Zero Brokerage on Equity Delivery

Join our 2 Cr+ happy customers

Enjoy Zero Brokerage on Equity Delivery
Enjoy Zero Brokerage on Equity Delivery

Get the link to download the App

Send App Link

Enjoy Zero Brokerage on
Equity Delivery