RBI Expands Horizons: New Opportunities For Overseas Investments

The Reserve Bank of India (RBI) has amended the Foreign Exchange Management (Overseas Investment) Directions, 2022 (the ODI Directions) through Circular No. 09, RBI/2024-25/41 A.P. (DIR Series), dated June 7, 2024 (the “Circular”). With respect to all Category-I Authorized Dealer Banks.

There are two aspects of the amendment in terms of type of instrument and how the investment fund could be regulated under Existing Paragraph 1(ix)(e) and Paragraph 24(1) of FEM (OI) Directions, 2022. Firstly, listed entities and resident individuals were prohibited from investing in the units of overseas investment funds prior to the amendment under the OPI route. The RBI now approves investments in units or other instruments issued by overseas investment funds by both resident individuals and listed businesses under. The OPI route for investing in IFSC has also been amended, allowing Resident Individuals, Listed Entities, and Unlisted Indian Entities to invest in investment funds or vehicles in IFSC in units or other instruments instead of the previous restriction that only allowed investments in units issued by these investment funds or vehicles.

Secondly, the amendment has defined the possible regulatory framework for the investment fund. Before the amendment, only Investment Funds Overseas that were properly regulated by the financial sector regulator in the host jurisdiction were acceptable for investment by listed entities and residents.  Currently, nevertheless, the RBI has approved investments in foreign investment funds that are overseen by the host country’s financial authority or by a fund management.

The RBI’s modification will greatly increase flexibility and open up new investment options for resident individuals, listed companies, and unlisted Indian organizations. According to these modifications, investments can now be made in a range of instruments issued by international investment funds and those headquartered in international financial services centers, in addition to units (IFSCs). The investment fund regulatory structure has also been enhanced, providing much-needed clarity. These adjustments should make it easier to invest in foreign portfolios in a more dynamic and varied manner, giving stakeholders more alternatives and clarity over their investment strategy.