Routes towards investment in India
The AR allows investment in the country without prior approval of the Government or the Reserve Bank of India, in all activities/ sectors as specified in the Regulation 16 of FEMA 20 (R). The GR applied to investments in activities not covered under the AR route whereby approval needs to be sought from the Government prior to investment.
The FI can choose to make investments via either of the following mechanisms:
- Foreign Direct Investment (FDI);
- Foreign Portfolio Investment (FPI); and
- Foreign Institutional Investor (FII).
FDI involves setting up a firm in India and usually the FI ties up with an Indian counterpart to start up a company and basically a domestic entity runs the firm. Such investment can be in an unlisted Indian company or involve 10% or more stake in the entity. The FDI allows the FI to maintain control on the firm however the risk of facing difficulties in selling the firm at a premium price is higher. Should the stake of the FI be lower than initial holding of 10% or more, it would remain an FDI.
It is the percentage which defines whether investment in India is direct or portfolio investment.
As regard FPI and FII, the FI enters the Indian market via the capital market, that is via purchase of shares/stocks/bonds. Such investments are relatively liquid and volatile. The difference between FPI and FII is that the investment in the former case is made by a company and investment in the latter case is made by individual investors.
All FIIs are allowed to invest in India's primary and secondary capital markets only through the country's portfolio investment scheme (PIS). However, there are many regulations included in the scheme. The Reserve Bank of India monitors daily compliance with these ceilings for all foreign institutional investments.
HOW MITCO CAN HELP?
- Assistance to prospective applicants to coordinate for Board approval;
- Assistance for the selection and appointment of the designated depository participant (DDP)
- Assistance for the classification of the category of the FPI
- Assistance for the registration process including settlement of fees, preparation of application forms, notarization of supporting documents, follow up and retrieval of the FPI Licence, statutory filings on FPIs with Indian authorities and all related requests.
For more information, we invite you to contact your relationship manager at MITCO or the business development team by email firstname.lastname@example.org or phone them on + 230 404 8000.