Ways of Investments in Foreign Equity

There are two ways to acquire a Foreign Equity:

  • Conventional way of Investments
  • Non-Conventional way of Investments

Conventional Way of Investment

Conventional way of Investment refers to the methodology where an Individual has intentionally taken steps to acquire the Foreign Equity.

  • Investments in Listed Foreign Equity
  • Entering into a Joint Venture
  • Setting up an Overseas Subsidiary
  • Acquiring an Existing Entity as WoS
  • Acquiring Qualification shares for directorship

Non-Conventional Way of Investment

Non-Conventional way of Investments refers to the methodology where an Individual ends up receiving a foreign Equity, as a result of being a party to a different transaction.

  • ESOPs By Foreign Holding Co to the Employees of its Indian Subsidiary
  • As a process of Externalisation
  • Demerger of Indian Entity where Consideration is given by Foreign Holding Company
  • Amalgamation of Indian Entity with Foreign Entity
  • Issue of Shares for consideration other than Cash

Modes of Investment

Resident Individuals are allowed to make investments abroad either by way of portfolio investments under the Liberalized Remittance Scheme (LRS) or by way of a financial commitment into JV/WOS (ODI) under Reg. 20A of FEMA 120 / RB 2004 of RBI dated July 7, 2004 as amended from time to time. 

Possible modes of Investment are :

  • Liberalised Investment Scheme (LRS) : LRS is meant for Portfolio Investments, where investor do not have any Managerial Rights
  • Overseas Direct Investment (ODI) : ODI Route is opted for Strategic Investments
  • Gifts/ Inheritance of Shares : This is not a sperate method for acquiring shares. However, Foreign Exchange Management Laws give general permission to resident Individuals to acquire Shares as Gift with certain conditions

“Resident Indian remit record $ 18.75 Bn in FY 20 under LRS; the remittance in FY 20 jumped 36% overt the previous high of $ 13.78 Bn remitted in FY 19”

Source : Indian Express

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