MASTER DIRECTION- FOREIGN INVESTMENT Flashcards
(14 cards)
Equity Instruments’
‘Equity Instruments’ are equity shares, convertible debentures, preference shares and share warrants issued by an Indian company.
‘Convertible Note’
‘Convertible Note’ is an instrument issued by a start-up company evidencing receipt of money initially as debt, which is repayable at the option of the holder, or
which is convertible into such number of equity shares of such start-up company, within a period not exceeding ten years from the date of issue of the convertible note, upon occurrence of specified events as per the other terms and conditions agreed to and indicated in the instrument.
‘Foreign Direct Investment’
(FDI) is the investment through equity instruments by
a person resident outside India (a) in an unlisted Indian company; or (b) in 10 percent or more of the post issue paid-up equity capital on a fully diluted basis of a listed
Indian company.
Fully diluted basis
Fully diluted basis means the total number of shares that would be outstanding if all possible sources of conversion are exercised.
‘Foreign Portfolio Investment’
‘Foreign Portfolio Investment’ is any investment made by a person resident outside India in equity instruments where such investment is (a) less than 10 percent
of the post issue paid-up equity capital on a fully diluted basis of a listed Indian company or (b) less than 10 percent of the paid-up value of each series of equity
instruments of a listed Indian company.
‘Investment on repatriation basis’
‘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 non-repatriation basis’, will be construed accordingly.
‘Investment Vehicle’
‘Investment Vehicle’ is an entity registered and regulated under relevant regulations framed by SEBI or any other authority designated for the purpose and will
be Real Estate Investment Trusts (REITs) governed by the SEBI (REITs) Regulations, 2014, Infrastructure Investment Trusts (InvITs) governed by the SEBI
(InvITs) Regulations, 2014 and Alternative Investment Funds (AIFs) governed by the SEBI (AIFs) Regulations, 2012.
‘Non-Debt Instruments’
a. all investments in equity instruments in incorporated entities: public, private, listed and unlisted;
b. capital participation in LLP;
c. all instruments of investment recognised in the FDI policy notified from time to time;
d. investment in units of Alternative Investment Funds (AIFs), Real Estate Investment Trust (REITs) and Infrastructure Investment Trusts (InvITs);
e. investment in units of mutual funds or Exchange-Traded Fund (ETFs) which invest more than fifty per cent in equity;
f. g. junior-most layer (i.e. equity tranche) of securitisation structure; acquisition, sale or dealing directly in immovable property;
h. contribution to trusts; and
i. depository receipts issued against equity instruments.
‘Real estate business
‘Real estate business’ is dealing in land and immovable property with a view to earning profit therefrom and does not include development of townships, construction of residential/ commercial premises, roads or bridges, educational institutions, recreational facilities, city and regional level infrastructure, townships.
Prohibited sectors/ persons
Investment by a person resident outside India is prohibited in the following sectors:
- Lottery Business including Government/ private lottery, online lotteries.
- Gambling and betting including casinos.
- Chit funds
- Nidhi company
- Trading in Transferable Development Rights (TDRs).
- Real Estate Business or Construction of farm houses.
- Activities/sectors not open to private sector investment viz., (i) Atomic energy and (ii) Railway operations
Entry Routes
Automatic Route is the entry route in which investment by a person resident outside India does not require the prior approval from the Central Government.
Government Route is the entry route in which investment by a person resident outside India requires prior Government approval. Foreign investment received under this route shall be in accordance with the conditions stipulated by the Government in its approval.
Sectoral caps
It means the maximum permissible foreign investment in an Indian entity, including both foreign investment on a repatriation basis by person residents outside India in
equity instruments of a company or the capital of a LLP, as the case may be, and indirect foreign investment, unless provided otherwise.
Foreign investment is permitted up to 100% on the automatic route, subject to applicable laws/rules/regulations, security and other conditionalities, in sectors/ activities not listed in Schedule I of the NDI Rules and not prohibited under Para (2) of Schedule I of the NDI Rules.
Downstream Investment
The guiding principle of the downstream investment guidelines is that “what cannot be done directly, shall not be done indirectly”. Accordingly, downstream investments which are treated as indirect foreign investment are subject to the entry routes, sectoral caps or the investment limits, as the case may be, pricing guidelines, and the attendant conditionalities for such investment as laid down in the NDI Rules.
Based on the guiding principle of the downstream investment, the arrangements which are available for direct investment under the Rules such as investment by way of swap of equity instruments/equity capital, payment arrangements/mechanism as per Rule 9(6) of the Rules etc, shall also be available for the purpose of downstream investment provided that the transaction does not circumvent the provisions contained in Rule 23 of the Rules, including the restrictions on use of borrowed funds for downstream investment.
Transfer by a person resident outside India of equity instruments containing an optionality clause
A person resident outside India holding equity instruments of an Indian company containing an optionality clause in accordance with NDI Rules and
exercising the option/ right, can exit without any assured return, subject to the pricing guidelines prescribed under NDI Rules and a minimum lock-in period of one year or minimum lock-in period under NDI Rules, whichever is higher.
