FDI, FPI and ODI: Features and Regulations

Overview

Cross-border capital flows in India are commonly grouped by ownership level and investment intent into Foreign Direct Investment (FDI), Foreign Portfolio Investment (FPI), and Overseas Direct Investment (ODI). These flows are governed mainly under the Foreign Exchange Management Act (FEMA), with the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI) handling different parts of the framework.

The 10% equity threshold is the key dividing line between FDI and FPI, while outbound investment rules determine when an Indian investment abroad is treated as ODI or Overseas Portfolio Investment (OPI).

FDI and FPI: Core Classification

• FDI threshold: Foreign investment of 10% or more in the equity of an Indian company or limited liability partnership (LLP) is treated as Foreign Direct Investment (FDI).
• FPI threshold: Foreign investment of less than 10% is classified as Foreign Portfolio Investment (FPI).
• Investment intent: FDI generally indicates long-term strategic participation, while FPI is mainly aimed at portfolio returns and diversification.
• Regulatory framework: FDI and FPI operate under FEMA, but they are administered through different routes and institutions.
• Primary regulators: FDI is regulated by the RBI and relevant government ministries, while FPI is regulated by SEBI.

FDI Routes, Approvals and Policy Changes

• Automatic Route: No prior government clearance is required for sectors and limits permitted under the automatic route.
• Government Route: Prior clearance from the relevant ministry or department is required where the policy mandates approval.
• Insurance sector liberalisation: Press Note 1 of 2026 removed the requirement that a majority of directors and key managerial personnel of a foreign-invested insurer must be resident Indian citizens.
• Beneficial Owner definition: Press Note 2 of 2026 defined “Beneficial Owner” and updated the framework for investments from Land-Bordering Countries (LBCs).
• LBC investment rule: Under the updated March 2026 position, LBC investors can acquire up to 10% non-controlling ownership through the automatic route, while larger stakes or investments with control, particularly from China or Hong Kong, require government approval.
• FDI proposal processing: On May 4, 2026, a new Standard Operating Procedure (SOP) was notified to process FDI proposals, replacing the 2023 version.
• Direct equity access: The Foreign Exchange Management (Non-debt Instruments) (Third Amendment) Rules, 2026, allowed all individual foreign residents to invest in listed Indian equities on a recognised stock exchange under enhanced limits.

FPI Onboarding, Disclosure and Fees

• SWAGAT-FI: SEBI introduced the “Single Window Automatic & Generalised Access for Trusted Foreign Investors” framework on January 16, 2026 to streamline onboarding of FPIs and Foreign Venture Capital Investors (FVCIs).
• Registration fees: Under SEBI amendments notified on July 3, 2026, FPI and FVCI registration fees were shifted from US dollars to Indian rupees.
• Category-I fee: Set at ₹2.3 lakh, revised from USD 2,500.
• Category-II fee: Set at ₹23,000, revised from USD 250.
• Granular look-through disclosure: In April 2025, SEBI raised the Assets Under Management (AUM) threshold for additional granular look-through disclosures from ₹25,000 crore to ₹50,000 crore.
• Material change reporting: Under the updated FPI Standard Operating Procedure dated January 16, 2026, Type I changes must be reported within 7 working days and Type II changes within 30 calendar days.

ODI and Overseas Portfolio Investment

• ODI meaning: Overseas Direct Investment refers to investment in unlisted foreign equity, acquisition of control, or holding 10% or more equity in listed foreign entities.
• OPI meaning: Outbound investment of less than 10% in listed foreign equities without control is treated as Overseas Portfolio Investment (OPI).
• RBI master direction: Under the Master Direction on Overseas Investment, updated as of April 1, 2026, Indian entities can invest up to 400% of their net worth under the automatic route.
• Approval requirement: Investments beyond the automatic route limit require prior RBI approval.
• LRS limit: Indian resident individuals investing under the Liberalised Remittance Scheme (LRS) up to USD 250,000 can invest only in operating entities and cannot invest in financial services.
• Layer restriction: Indian businesses are barred from making overseas direct investments that result in more than two layers of foreign subsidiaries.
• Late filing fee: Delays in mandatory overseas investment disclosures attract late submission fees starting at ₹7,500.

Comparative View

Key Prelims Takeaways

• 10% rule: The 10% equity holding limit is the main distinction between FDI and FPI in India.
• FDI routes: FDI is permitted through the automatic route and the government route.
• LBC control: Investors from Land-Bordering Countries face stricter approval requirements for larger or controlling stakes.
• SWAGAT-FI: SEBI’s trusted investor framework simplifies onboarding for foreign portfolio and venture capital investors.
• ODI vs OPI: ODI generally covers 10% or more equity or control abroad, while OPI covers smaller passive holdings in listed foreign equities.
• Corporate outbound cap: Indian entities can invest up to 400% of net worth under the automatic route for overseas investment.
• Resident individual limit: Under LRS, resident individuals cannot invest in foreign financial services and are subject to the USD 250,000 cap.