The Reserve Bank of India (RBI) has introduced significant amendments to the Foreign Exchange Management (Overseas Investment) Directions, 2022, providing a much-needed boost for Indian investors and companies looking to invest in overseas funds. This regulatory change lifts several restrictions, facilitating easier and more flexible overseas investments.
Key Amendments and Their Impact
Removal of Investment Restrictions: Previously, Indian Limited Partners (LPs) could only invest in units issued by overseas funds directly regulated by the financial regulator of the host country. The latest amendments now allow investments in any instrument, whether in units or otherwise, broadening the scope of potential investments.
Regulation of Investment Managers: The changes also eliminate the condition that investments must be in funds directly regulated by the host country’s financial regulator. Now, funds regulated through their investment managers (IMs), like those in the US and Singapore, can receive investments from Indian LPs. This is particularly beneficial as some jurisdictions regulate the fund manager rather than the fund itself.
Flexibility for Fund Establishment: The regulatory update provides General Partners the flexibility to establish their funds in commercially favorable jurisdictions without concerns about the permissibility of Indian investments. This move is expected to attract more investments into diverse asset classes such as real estate, private equity, and credit.
Enhanced Competitiveness: Industry experts highlight that these changes will enhance the competitiveness of Indian investors and companies in the global market. The previous restrictions had forced new funds to be set up in jurisdictions like the Cayman Islands and Mauritius to accommodate Indian investments. The new regulations simplify this process, making it easier for Indian entities to invest abroad.
Benefits for Resident Indian Investors: The revised framework offers resident Indian investors and corporates the opportunity to invest directly in funds domiciled in reputable jurisdictions like Singapore, benefiting from their global fund management expertise and stable investment environments.
Industry Reactions
Prakhar Dua, Lead of Financial Services and Regulatory Practice at Nishith Desai Associates, mentioned that these clarifications were much awaited. He noted that resident Indian individuals could now honor their capital calls received from certain overseas funds, including exempt funds in the US and venture capital companies in Singapore.
Anand Singh, founder of Elios Financial Services, emphasized that the RBI’s move would allow resident Indian investors to invest in a wide variety of funds, enhancing their portfolios with different asset classes.
Conclusion
The RBI’s amendments to the Foreign Exchange Management (Overseas Investment) Directions, 2022, mark a significant step towards liberalizing overseas investments for Indian investors and companies. By removing previous restrictions and offering greater flexibility, the RBI is paving the way for enhanced global competitiveness and diversified investment opportunities.
