I. Para 1 (ix) (e) read with Para 24(1) of the prevailing Foreign Exchange Management (Overseas Investment) Directions, 2022 states that the investment (including sponsor contribution) in “units” of any investment fund overseas, duly regulated by the regulator for the financial sector in the host jurisdiction, shall be considered as Overseas Portfolio Investment (“OPI”). It further states that in jurisdictions other than IFSC, listed Indian companies and resident individuals may make such investments. Whereas in IFSC an unlisted Indian entity may also make such OPI in units of an investment fund or vehicle, in terms of schedule V of the OI Rules subject to limits, as applicable.
II. Hence, under the existing Directions, only “units” of investment funds issued overseas were considered as OPI. Further, only those investment funds were considered to be eligible which were directly regulated by the regulator for the financial sector in the host jurisdiction.
III. To relax the said provisions so as to expand the scope of OPI to cover even other instruments issued by overseas Investment Funds which may either be regulated directly or through a fund manager, RBI has amended the said Paras by issuing Circular No. 9 dated June 07, 2024.
IV. Accordingly, now the said Paras reads as under (amendment highlighted for reference):
Para 1(ix) (e):
“The investment (including sponsor contribution) in units or any other instrument (by whatever name called) issued by an investment fund overseas, duly regulated by the regulator for the financial sector in the host jurisdiction, shall be treated as OPI. Accordingly, in jurisdictions other than IFSCs, listed Indian companies and resident individuals may make such investments. Whereas in IFSCs, an unlisted Indian entity also may make such OPI in units or any other instrument (by whatever name called) issued by an investment fund or vehicle, in terms of schedule V of the OI Rules subject to limits, as applicable.
Explanation: ‘investment fund overseas, duly regulated’ for the purpose of this para shall also include funds whose activities are regulated by the financial sector regulator of the host country or jurisdiction through a fund manager.”
Para 24 (1):
“A person resident in India, being an Indian entity or a resident individual, may make investment (including sponsor contribution) in units or any other instrument (by whatever name called) issued by an investment fund or vehicle set up in an IFSC, as OPI. Accordingly, in addition to listed Indian companies and resident individuals, unlisted Indian entities also may make such investment in IFSC.”
Conclusion:
Accordingly, it is now explicitly stated that regulated overseas investment funds would include even those funds whose activities are regulated by the financial sector regulator of the host country or jurisdiction through a fund manager. Further, investment (including sponsor contribution) made in any instrument (not only “units”) issued by a duly regulated overseas investment funds shall be treated as OPI.
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