Master Direction – Foreign Investment in India (Updated up to June 15, 2026)
UR
- Applies toAll regulated entities
- StatusIn force
- ImportanceFOR INFORMATION
- IssuedJan 04, 2018
- Amendmentsnone tracked
- Length57 points in 3 sections · 6 min read
The four dates on this rule
- PublishedJan 04, 2018The day RBI put this document out.
- Starts to applyNot statedNot stated separately in this document. Read the rule itself before you assume a start date.
- Time to get readyNot statedCannot be worked out until the day it starts to apply is known.
- Last date to actNot statedNo date to act by was found in this document. Other dates may sit inside single paragraphs.
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What it says
Must know
1. FEMA Law Always Wins
If this guidance disagrees with the FEMA rules, the FEMA rules win.
2. No FDI In Inventory E-commerce
Foreign money cannot go into e-commerce firms that own and sell their own stock.
3. What Counts As FDI
Foreign money is called FDI when it buys 10 percent or more of a listed company's shares.
4. What Counts As FPI
Foreign money is called FPI when it buys less than 10 percent of a listed company's shares.
5. FPI Must Register With SEBI
A Foreign Portfolio Investor must first sign up with SEBI, India's market regulator.
6. What Is A Sectoral Cap
The sectoral cap is the most foreign money a firm in that field may take.
7. Banned Investment Sectors List
Foreign money cannot go into lottery, gambling, betting, or casino firms.
8. Chit funds and Nidhi banned
Foreign money cannot go into chit funds or Nidhi firms at all.
9. No FDI In Tobacco
Foreign money cannot go into cigar, cigarette, or tobacco factories.
10. Atomic energy, railways off-limits
Foreign money cannot enter atomic energy or railway work.
11. Pakistan Investors Need Approval
A person from Pakistan needs government approval first, outside banned areas.
12. Automatic Route Needs No Approval
Under the Automatic Route, a foreign investor needs no government approval to invest.
13. Government Route Needs Approval
Under the Government Route, a foreign investor must get approval first.
14. FPI Cap In Banned Sectors
In a sector banned for FDI, FPIs together can still hold up to 24 per cent.
15. Total Investment Cannot Exceed Cap
Total foreign money in a sector can never go above the set limit.
16. Company Owns Cap Compliance
The firm that takes foreign money must stay within its sectoral cap and terms.
17. Convertible Notes Last Ten Years
Within ten years of issue, the holder can turn the note into shares or take a refund.
18. Pricing formula for unlisted shares
An unlisted company's share price must be set by a fair method, checked by a professional.
19. Downstream investment guiding principle
A company cannot use a subsidiary to dodge a rule it must follow directly.
20. No Indirect Route Around Rules
A company cannot use a side route to do what these rules do not allow directly.
21. What Is Downstream Investment
Downstream investment is when a foreign-owned firm invests in another Indian firm.
22. Only Indian Entities Qualify
Only an Indian firm or LLP may take indirect foreign money, no one else.
23. Company Answers For Downstream Investment
A firm that invests further down the chain must ensure each later investment follows the rules too.
24. Combined FPI Limit 24 Percent
All FPIs together cannot own more than 24 per cent of one firm's shares.
25. NRIs Can Trade Listed Shares
A non-resident Indian abroad can buy or sell shares of a listed Indian company on a stock exchange.
26. NRI non-repatriable investment bans
Even with no repatriation rights, an NRI still cannot buy a Nidhi firm, farm houses, or real estate.
Do it
1. Real estate broking is exempt
Real estate broking is not real estate business, so it gets full automatic foreign money.
2. Partly Paid Shares Twelve Months
Partly paid shares given to a foreign investor must be paid up in full within twelve months.
3. Joint audit for global-network auditors
If the audit firm has global links, a second, separate auditor must also check the books.
4. Rights issue price floor
In an unlisted firm, foreign investors in a rights issue cannot pay less than resident investors pay.
5. ESOPs for overseas group employees
An Indian company can give stock options or extra shares to staff at its overseas parent or arm.
6. ESOPs to Pakistan, Bangladesh citizens
A firm needs approval first to give shares to staff from Pakistan or Bangladesh.
7. Minimum For Convertible Notes
A foreign investor must put in at least twenty five lakh rupees at one go to buy convertible notes.
8. Escrow Account Six Month Limit
The escrow account for convertible notes must be shut within six months at the latest.
9. Fix Breach Within Five Days
If an FPI buys past the limit, it must sell those shares within five trading days.
10. Gift Cap Is Five Percent
A gift of shares to one person cannot be more than 5 percent of the firm's paid up capital.
11. Yearly Gift Cap USD 50000
One person cannot gift more than USD 50,000 in shares to people abroad in a year.
12. Deferred Payment Limit 18 Months
The buyer may delay paying twenty five per cent of the price, but only for eighteen months.
13. Fix Pledge Breach Within 30
If a share pledge breaks an NBFC lending limit, the shares must be sold within 30 days.
14. No guaranteed exit price
The foreign investor gets no fixed exit price; it must exit at the market price then.
15. Share swaps need banker valuation
Any share swap, of any size, must be priced by a SEBI banker or its foreign equal.
16. LLP contribution needs valuation certificate
A chartered accountant or an approved valuer must set the value of foreign money put into an LLP.
17. Valuation Certificate Ninety Day Limit
The certificate that sets the share price cannot be more than ninety days old.
18. Report Reclassification Within 30 Days
If a firm becomes foreign owned, it must report this within 30 days in Form DI.
19. FC-TRS for downstream investment exit
When a foreign-owned firm sells its downstream stake to a non-resident, it must file Form FCTRS.
20. Get Yearly Auditor Certificate
Each year, the firm must get a certificate from its own auditor.
21. Report Auditor Concerns To RBI
If the auditor flags a concern, the firm must tell RBI's local office at once.
22. Startup Costs Capped At 5pc
A new Indian arm can issue shares for its setup costs only up to 5 per cent of its capital.
23. File FC-GPR Within 30 Days
The firm must file Form FC-GPR within thirty days of issuing shares to a foreign investor.
24. Refund Within Sixty Days
If the firm does not issue shares within sixty days of getting the money, it must refund it.
25. FPI short-selling headroom rule
A foreign portfolio investor can short-sell a stock only if 2 percent headroom is still free.
Background
1. What Counts As Indian Company
The rules cover any Indian company, including one set up under a special state or central law.
2. What Is A Convertible Note
A convertible note is money a start-up first takes as a loan that can later turn into shares.
3. What Makes A Group Company
Two firms count as one group if one holds 26 percent or more votes in the other.
4. What counts as investment vehicle
An investment vehicle is a REIT, InvIT, or AIF that SEBI regulates.
5. What Is An LLP
An LLP is a firm set up and signed up under a 2008 law.
6. Sweat Equity Allowed Since 2015
Foreign investors have been allowed to receive sweat equity shares since June 11, 2015.