**Summary:**
This circular, RBI/2021-22/38 A.P.DIR Series Circular No. 04, issued by the Reserve Bank of India (RBI) on May 12, 2021, clarifies the treatment of sponsor contributions from Indian Parties (IP) to Alternative Investment Funds (AIFs) established in overseas jurisdictions, including International Financial Services Centres (IFSCs) in India.
The RBI has decided that such sponsor contributions will be classified as Overseas Direct Investment (ODI). Consequently, IPs, as defined in Regulation 2(k) of Notification FEMA 120/2004-RB, are permitted to establish AIFs in overseas jurisdictions, including IFSCs, under the automatic route, provided they adhere to Regulation 7 of the aforementioned Notification FEMA 120/2004-RB, which pertains to investments in the financial services sector.
This circular amends Master Direction No. 15 dated January 1, 2016, on Direct Investment by Residents in Joint Venture (JV)/Wholly Owned Subsidiary (WOS) Abroad, specifically paragraphs A.3.e and B.6. All other provisions within Notification FEMA 120/2004-RB remain unchanged.
The circular is issued under Sections 10(4) and 11(1) of the Foreign Exchange Management Act (FEMA) and is without prejudice to other applicable laws and required approvals.
Category-I Authorised Dealer (AD) banks are instructed to inform their constituents and concerned customers of these changes.
For further information, contact Ajay Kumar Misra, Chief General Manager-in-Charge, Reserve Bank of India.
Key Entities Referenced
Reserve Bank of India: The central bank of India, responsible for regulating the Indian banking system.
Mumbai, Maharashtra: The city in India where the Reserve Bank of India is located, according to the policy text.
A.P.DIR Series Circular No. 04: A circular issued by the Reserve Bank of India (RBI) related to Authorised Dealer (AD) banks.
All Category-I Authorised Dealer Banks: Banks authorized by the Reserve Bank of India to deal in foreign exchange.
Master Direction No.15: A set of comprehensive directions issued by the Reserve Bank of India (RBI) regarding direct investment.
January 1, 2016: Date of publication of Master Direction No. 15.
FEMA 120/2004-RB: Notification related to Foreign Exchange Management Act (FEMA), pertaining to provisions for an Indian Party making investment.
International Financial Services Centres (IFSCs): Special economic zones in India that provide financial services to non-residents and residents.
भारतीय �रज़व र्बक� /RESERVE BANK OF INDIA
मुंबई/ MUMBAI – 400 001
RBI/2021-22/38
A.P.(DIR Series) Circular No. 04 May 12, 2021
To
All Category-I Authorised Dealer Banks
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Madam/ Sir 2
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Sponsor Contribution to an AIF set up in Overseas Ju2risdiction, including IFSCs
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Attention of AD Category - I banks is invited to paragraphu A.3.(e) and B.6 of Master Direction No.15
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dated January 1, 2016, on “Direct Investment by Residents in Joint Venture (JV) / Wholly Owned
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Subsidiary (WOS) Abroad”, as amended from tim. e to time and Regulation 7 of the Notification FEMA
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120/2004-RB, pertaining to provisions for an Indian Party (IP) making investment/ financial
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commitment in an entity engaged in the financial services sector.
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2. It has been decided that any srponsor contribution from a sponsor IP to an Alternative Investment
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Fund (AIF) set up in an overseas jurisdiction, including International Financial Services Centres
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(IFSCs) in India, as per the laws of the host jurisdiction, will be treated as Overseas Direct
Investment (ODI). Accordingly, IP, as defined in regulation 2(k) of the Notification ibid. can set up
AIF in overseas jurisdictions, including IFSCs, under the automatic route provided it complies with
Regulation 7 of the Notification FEMA 120/2004-RB.
3.All the other provisions under the Notification ibid. shall remain unchanged. AD Category - I banks
may bring the contents of this circular to the notice of their constituents and customers concerned.
4. The Master Direction No. 15 dated January 01, 2016, is being updated to reflect the changes.5. The directions contained in this circular have been issued under section 10 (4) and 11(1) of the
FEMA and are without prejudice to permissions/approvals, if any, required under any other law.
Yours faithfully
Ajay Kumar Misra
Chief General Manager-in-Charge
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