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RBI Updates Foreign Exchange Management Guidelines for Overseas Investments

The Reserve Bank of India (RBI) has revised the Foreign Exchange Management (Overseas Investment) Directions, 2022, with a notification dated June 7, 2024.

This amendment provides enhanced clarity on Overseas Portfolio Investments (OPIs) in foreign funds, allowing Indian investors and companies to invest in overseas funds, including those established in the United States and Singapore, without restrictions.

Key Amendments:

  • Revised Definition of Overseas Portfolio Investment (OPI):

Previous Provision: Paragraph 1(ix)(e) of FEM (OI) Directions, 2022, previously defined investments in units of investment funds overseas, regulated by the financial sector regulator of the host jurisdiction, as Overseas Portfolio Investments.

Revised Provision: The revised paragraph broadens the scope to include investments in “units or any other instrument” issued by overseas investment funds. This change clarifies that both listed Indian companies and resident individuals can invest in these instruments. In International Financial Services Centres (IFSCs), unlisted Indian entities are also permitted to invest, subject to applicable limits.

Explanation Added: The term “investment fund overseas, duly regulated” now encompasses funds regulated by the host country’s financial sector regulator through a fund manager.

  • Expanded Investment Opportunities in IFSCs:

Previous Provision:  Paragraph 24(1) of FEM (OI) Directions, 2022, limited investments in units of investment funds or vehicles set up in IFSCs to listed Indian companies and resident individuals.

Updated Provision: The revision allows unlisted Indian entities to also invest in such funds or vehicles within IFSCs, expanding the scope for Overseas Portfolio Investments.

These guidelines shall apply to all Category-I Authorized Dealer Banks.

The recent changes address previous limitations where resident Indian individuals faced difficulties in meeting capital calls from certain international funds, such as exempt funds in the US and variable capital companies in Singapore. Under the new rules, these funds can now accept investments from Indian residents, provided they can prove to Authorized Dealer (AD) banks that their activities are regulated in their home countries through their registered or regulated Investment Managers.

Previously, due to these restrictions, new funds had to be created in jurisdictions like the Cayman Islands and Mauritius to facilitate investments from Indian Limited Partners (LPs). The regulatory update now permits General Partners to set up funds in commercially advantageous jurisdictions without concern over Indian investment restrictions.

This change offers Indian investors and corporates the opportunity to directly invest in Singapore-domiciled funds, leveraging Singapore’s global fund management expertise and stable investment environment. Investors can also access a broad range of fund types, including those investing in real estate, private equity, credit, and other asset classes.