Ways in which a Foreign Investor can invest in India

FDI - Foreign Direct Investment has been a major contributor to the Indian economy. There are an increasing number of foreign investors who are very interested in investing in the country as they are aware of the potential of Indian companies and human resources.

 

India is today’s time has been attracting heaving foreign investments due to its promising market size, natural resources, and skilled low-wage labor. The various foreign investors want to make the best use of the Indian resources for their profit and in turn major development is happening in India due to foreign direct investment.

 

However, the path of foreign investment in India is not very clear to many investors, hence in this blog I will be covering the essential points in regard to this.

 

Before making foreign investments in India it is vital to understand the foreign policy guidelines that have been laid down by the government of India from time to time because amendments are made to them. 

 

There are two routes through which foreign direct investments can be made in India and that is the

a)     government route and

b)     automatic route.

 

Through the government route, there are certain sectors in which the government of India has put restrictions for foreign investments that only after the approval from the government, investments in that sector can be done by the investors.

Through the automatic route, there are some sectors in which the government has allowed that no government approval is required for investments.

 

There are foreign portfolio investments that can be made by foreign investors in India. The Portfolio Investment Scheme (PIS) allows the eligible foreign organizations for the investments in the share and convertible debentures of the various Indian organizations, units of domestic mutual funds, or Indian stock exchanges.

[The list of eligible foreign institutions includes foreign institutional investors (FIIs), non-resident Indians (NRIs), persons of Indian origin (PIOs) and qualified foreign investors (QFIs).]

 

FII 

The Foreign Institutional Investors (FII) is the organizations that are based abroad but they are willing to invest in the securities in India. Therefore, for such investors, the RBI gives permission to get them registered with SEBI first and the SEBI registers FII can make investments in the Indian market through the PIS route.

 

NRIs

The Non-resident Indians can also make Investments in India through the buying and selling of shares, convertible debentures via a registered stockbroker on a registered stock exchange. It is essential to follow the guidelines of the stock exchange market and be registered only with a registered broker. NRI’s are also given an allowance by the Indian government for the buying and selling of mutual funds units in India. The NRIs and FIIs can make investments in government securities, treasury bills, listed nonconvertible debentures, bonds, commercial papers released by Indian companies and units of domestic mutual funds in accordance with the restrictions that are imposed by RBI.

 

QFI 

QFI is the individuals and organizations that are a member of the Financial Action Task Force (FATF) and they are given the allowance of investing in the mutual funds, equity shares, and government/corporate bonds.

 

Foreign venture capital investors 

Foreign venture capital investors can make investments in a domestic venture capital fund or venture capital undertaking. It is essential for the foreign venture capital investors to undertake separate registration from SEBI and their investments must be of 66.67% of the investible funds in unlisted equity shares/equity-linked instruments of an Indian venture capital undertaking.