RBI vide notification no. RBI/2024-25/41 dated June 7 2024 (“OPI Amendment”) amended the provisions in relation to portfolio investment by residents in the overseas.
Under the existing FEMA Overseas Investment Direction, overseas portfolio investment (“OPI”) by listed Indian companies and resident individuals are permitted to invest in the ‘units’ of an investment fund overseas in a jurisdiction other than IFSC. Similarly, unlisted Indian companies are permitted to make investment in ‘units’ of an investment fund or vehicle in an IFSC. Further, one of the criteria for determination of permitted investment fund was that such investment fund were required to be regulated by the regulator for the financial sector in the host jurisdiction.
Generally, investment funds are structured in a manner that the same are not regulated. Due to such specific conditionalities, the above provision restricted the scope of investment by residents in investment funds that were managed by fund manager who were regulated. Further, OPI in any other instruments were indirectly not permitted.
In order to remove such restrictions, RBI vide OPI Amendment dated June 7, 2024, brought in much needed amendment to additionally permit, OPI by residents in any ‘other instruments’ in addition to units of an Investment fund. Further a clarification has been provided in relation to investment fund, where it is provided that investment fund to also include funds whose activities are regulated by the financial sector regulator of host country or jurisdiction through a fund manager.
With this amendment, a relief is provided to carry and co-invest structures as now, Indian employees of an overseas private equity fund will also be eligible to participate in investment activities.
The OPI amendment is a welcome move as it provides much needed clarification and flexibility for making OPI investments. Further, it broadens the scope of making OPI in a tax efficient manner.
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