NRI, PIO, OCI,OCB, FI, FDI and FPI – Definitions

An investment advisor or a inexperienced NRI often faces difficulty while advising and taking investment decisions. NRI, PIO, OCI, OCB, FI, FDI and FPI are certain terms that often create confusion in the minds of investors and investment advisors. In this article we cover these terms.

Non Resident Indian (NRI)

As per FEMA guidelines, a Non-Resident Indian (NRI) means a “person resident outside India” who is a citizen of India or is a person of Indian origin”.

Person of Indian origin (PIO)

Person of Indian origin means a citizen of any country other than Pakistan or Bangladesh, if
a) he at any time, held an Indian passport; or
b) he or either of his parents for any of his grandparents was a citizen of India by virtue of the constitution of India or Citizenship Act, 1955 (57 of 1995); or
c) the person is a spouse of an Indian citizen or a person referred to in clause (a) or (b)

Overseas Citizen of India (OCI)

Overseas Citizen of India (OCI) Scheme became operational from 02nd Dec 2005. Under this, government of India  can grant overseas citizenship of India (OCI) commonly known as “dual citizenship”. A person is eligible to register as Overseas Citizen of India (OCI) under the following circumstances –

A foreign national,
a.     who was eligible to become a citizen of India on 26.01.1950 or
b.    was a citizen of India on or at anytime after 26.01.1950 or
c.    belonged to a territory that became part of India after 15.08.1947 and
d.     his/her children and grand children, provided his/her country of citizenship allows dual citizenship in some form or other under the local laws.
Minor children of such person are also eligible for OCI. However, if the applicant had ever been a citizen of Pakistan or Bangladesh, he/she will not be eligible for OCI.

Overseas Corporate Body (OCB)

Overseas Corporate Body (OCB) means a company, partnership firm, society and other corporate body owned directly or indirectly to the extent of at least sixty percent by Non-Resident Indians and includes overseas trust in which not less than sixty percent beneficial interest is held by Non Resident Indians directly or indirectly but irrevocably.

Foreign Investment (FI)

Foreign Investment (FI) means any investment made by a person resident outside India on a repatriable basis in capital instruments of an Indian company or to the capital of an LLP.

1.    Foreign Direct Investment (FDI)
Foreign Direct Investment (FDI) is the investment through capital instruments by a person resident outside India
(a) in an unlisted Indian company; or
(b) in 10 percent or more of the post issue paid-up equity capital on a fully diluted basis of a listed Indian company.

2.    Foreign Portfolio Investment (FPI)
Foreign Portfolio Investment is any investment made by a person resident outside India in capital instruments where such investment is
(a) less than 10 percent of the post issue paid-up equity capital on a fully diluted basis of a listed Indian company or
(b) less than 10 percent of the paid up value of each series of capital instruments of a listed Indian company.
FDI and FPI are agnostic from the point of view under which investment has been permitted. It is the percentage which defines whether it is direct or portfolio investment. An investment once classified as FDI will be continued as FDI even if percentage of investment comes down below 10%.

What is meant by fully diluted basis?

Fully diluted basis means the total number of shares that would be outstanding if all possible sources of conversion are exercised.

What are the two routes under which investments can be made in India?
The routes under which foreign investment can be made in India is as under:
a.    Automatic Route: Foreign Investment is allowed under the automatic route without prior approval of the Government or the Reserve Bank of India, in all activities/ sectors as specified in the Regulation 16 of FEMA 20 (R).
b.    Government Route: Foreign investment in activities not covered under the automatic route requires prior approval of the Government.

Which are the capital instruments permitted for receiving foreign investment in Indian companies?

Capital Instruments means equity shares, debentures, preference shares and share warrants issued by the Indian company.

Equity shares: Equity shares are those issued in accordance with the provisions of the Companies Act, 2013. It also includes partly paid equity shares issued on or after July 8, 2014.
Share warrants: Share warrants issued on or after July 8, 2014 will be considered as capital instruments.
Debentures: ‘Debentures’ means fully, compulsorily and mandatorily convertible debentures.
Preference shares: Preference shares mean fully, compulsorily and mandatorily convertible preference shares.

Note:-

i.    Non-convertible/ optionally convertible/ partially convertible preference shares issued as on and up to April 30, 2007 and optionally convertible/ partially convertible debentures issued up to June 7, 2007 till their original maturity are reckoned to be FDI compliant capital instruments.
ii.    Non-convertible/ optionally convertible/ partially convertible preference shares issued after April 30, 2007 and optionally convertible/ partially convertible debentures issued after June 7, 2007 shall be treated as debt and shall require conforming to External Commercial Borrowings guidelines regulated under Foreign Exchange Management (Borrowing and Lending in Foreign Exchange Regulations), 2000, as amended from time to time.