ODI

Overseas Direct Investment (ODI) is investment by an Indian person resident in India in the equity / equity-linked instruments of a foreign entity. Governed by the Foreign Exchange Management (Overseas Investment) Rules and Regulations, 2022, which replaced the earlier ODI framework with a clearer, more liberal regime.

Two routes:

• Automatic Route — no prior approval needed; remittance through the AD bank. Available where the Indian Party (or Resident Individual under LRS) is investing in a 'permissible' foreign entity engaged in 'bona fide business activity' and the financial commitment is within prescribed limits.
• Approval Route — RBI approval required where automatic conditions are not met (e.g., investment in financial services without satisfying conditions, investments in non-cooperative jurisdictions, structures with round-tripping concerns).

Eligible investors:

• Indian Party — Indian companies, LLPs, registered partnerships, body corporates created by a special act.
• Resident Individuals — under the Liberalised Remittance Scheme (LRS), up to US$250,000 per FY.
• Registered trusts and societies under the Approval Route, with conditions.

Financial commitment ceiling:

For an Indian Party, total financial commitment (equity + loan + guarantee) cannot exceed 400% of net worth as per the last audited balance sheet, under the Automatic Route. Beyond this, Approval Route.

Round-tripping — the big restriction:

Indian residents cannot invest in a foreign entity that has invested or proposes to invest back into India, with more than two layers of subsidiaries, except in specified cases. The OI Rules 2022 liberalised round-tripping to allow two-layer round trips subject to conditions — important for Indian-founded SaaS companies with Delaware / Singapore HoldCos.

Reporting compliance:

• Form FC — filed with RBI through AD bank before remittance for fresh ODI.
• APR (Annual Performance Report) — filed by December 31 every year for each foreign WOS / JV. Mandatory; non-filing prevents further ODI to that entity.
• Disinvestment reporting when stake is sold.
• FLA Return also captures ODI holdings annually by July 15.

Practical context for startups:

• Flipping an Indian startup to a Delaware / Singapore HoldCo (or unflipping back) triggers ODI / FDI considerations and share-swap pricing guidelines. Plan with FEMA counsel — Press Note 3 and round-tripping rules apply.
• GIFT City IFSC subsidiaries of Indian parents are treated favourably under OI Rules.