FPI Investment in Unlisted Shares: Rules, Limits & Process

Foreign investors put money into markets through Foreign Portfolio Investors. These investments have to follow certain rules. This is especially true when the investment is in an unlisted Indian company

 Can FPIs Invest in Unlisted Shares?

Usually, FPIs cannot invest in unlisted equity shares of an Indian company. Having an FPI registration does not mean you can buy shares of any company. Even if a private company is getting ready to go public its existing shares are not automatically available for FPI investment.

If you are an investor interested in start-ups or private companies you will probably need to use the FDI route under FEMA. However, if you already own shares the rules might be different.

 What Are the FPI Investment Limits?

If a security is available for FPI investment, each FPI can usually own up to 10% of the company’s paid-up equity capital. There are also limits on foreign investment and limits for specific industries.

It is essential to remember that the 10% limit does not mean an FPI can buy 10% of any company. The company’s shares must be eligible for FPI investment first. If they are not, the 10% limit does not apply.

 How Can Foreign Investors Invest in Unlisted Shares Through FDI?

For an unlisted Indian company, a foreign investor can usually use the FDI route. First, you need to check the company’s industry and the applicable foreign investment limit. Then you can invest through:

Automatic Route: You do not need government approval beforehand.

Government Route: You need government approval beforehand.

You can. Buy new shares issued by the company or purchase existing shares from an Indian shareholder if allowed. The transaction must comply with FEMA rules regarding pricing, valuation, and industry limits. When new shares are issued to an investor, the Indian company must report the transaction to the RBI using Form FC-GPR within 30 days.

So while FPI is mainly for investing in portfolios, FDI allows foreign investors to invest directly in eligible Indian businesses, including unlisted companies.

Key Takeaway

For an unlisted Indian company, a foreign investor should not assume that FPI registration is enough. You must first check if the investment is eligible for FPI. If it involves unlisted equity, you will probably need to use the FDI route, which has its own set of rules and requirements.

Remember, foreign investment rules can change, so you should always check the requirements from SEBI, FEMA, and RBI before investing.

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