Foreign Individuals (Not Only NRIs / OCIs) Now Permitted To Invest In Listed Indian Securities Under Schedule III Of NDI Rules

1. BACKGROUND:

• Under FEMA, the rules related to investment by a person resident outside India in an Indian company are provided under Foreign Exchange Management (Non-debt Instruments) Rules, 2019 (‘NDI Rules’).
• Schedule III of the NDI Rules deals with investment by NRIs and OCIs in equity instruments of a listed Indian company on repatriation basis on a recognised stock exchange.
• This schedule has been amended by the Foreign Exchange Management (Non-debt Instruments) (Third Amendment) Rules, 2026 (‘AmendmentRules’).
• Previously, Schedule III of the NDI Rules permitted only NRIs and OCIs to invest in equity instruments of a listed Indian company on repatriation basis on a recognised stock exchange.
• The Amendment Rules now permit any individual person resident outside India ('PROI'), not just NRIs / OCIs, to invest directly in equity instruments of a listed Indian company on repatriation basis on a recognised stock exchange, providing an alternative to the FPI route.
• Our analysis of the key features of the Amendment Rules is summarised hereunder.

2.  EXPANSION OF INVESTOR ELIGIBILITY UNDER SCHEDULE III

• The Amendment Rules substitute the expression 'NRI or OCI' with ‘an individual person resident outside India including an NRI or an OCI’ throughout the relevant provisions.
• Accordingly, any individual resident outside India (not just NRIs / OCIs) can now invest directly in equity instruments of a listed Indian company on repatriation basis on a recognised stock exchange, without needing to route the investment through the FPI framework.
• It has been clarified that investment by such individual PROI which results in transfer of ownership or control of the listed Indian company to entities or citizens of a country which shares land border with India or where beneficial owner of such investment is a citizen of any such country, shall require the prior approval of the Government.

3. INVESTMENT LIMITS

• Individual Limit: The total holding by any individual PROI should be less than 10% of the total paid-up equity capital on a fully diluted basis, or less than 10% of the paid-up value of each series of debentures, preference shares or share warrants issued by the Indian company.
• Aggregate limit under Schedule III: The total holdings of all individual PROIs taken together (under Schedule III) shall not exceed 24% of the total paid-up equity capital on a fully diluted basis, or 24% of the paid-up value of each series of debentures, preference shares or share warrants.
• Aggregate cap across Schedules: The total holding of an individual PROI in a listed company under Schedule II, Schedule III or any other schedule of NDI Rules taken together shall be less than the individual limit of 10%.

4.   BREACH OF THE INDIVIDUAL LIMIT

• Investment made by an individual PROI in breach of the prescribed limit of less than 10% shall be required to be divested within 5 trading days from the date of settlement of the trades causing the breach.
• In case the individual PROI chooses not to divest, the entire investment in the concerned company by such individual PROI shall be considered as Foreign Direct Investment (FDI) and such individual PROI shall not make further portfolio investment in that company.
• The individual PROI, through the designated branch of Authorized Dealer, shall bring the same to the notice of the depositories as well as the concerned company, within 7 trading days from the date of settlement of the trades causing the breach.
• The divestment of holdings by the individual PROI and the reclassification of portfolio investment as FDI, shall be subject to the same conditions as specified by SEBI and RBI for a foreign portfolio investor(FPI).
• The breach of the said aggregate or sectoral limit on account of such acquisition for the period between the acquisition and sale or conversion to FDI within the prescribed time, shall not be reckoned as a contravention under the NDI Rules.

5.   TRANSFER OF EQUITY INSTRUMENTS

• An individual PROI holding the equity instruments of an Indian company on a repatriation basis may transfer the same by way of sale or gift to any person resident outside India.
• However, prior Government approval will be required where:

• the company is engaged in a sector which requires Government approval; or
• the transfer is made to an individual PROI which results in transfer of ownership or control of the listed Indian company to entities or citizens of a country which shares land border with India, or where the beneficial owner of such investment is a citizen of any such country.

AURTUS COMMENTS

• Significant liberalisation of the portfolio investment window: Until now, direct portfolio investment on a recognised stock exchange on repatriation basis was available only to NRIs and OCIs. By opening Schedule III to all individual PROIs, the Government has created a meaningful alternative to the FPI route, particularly relevant for foreign HNIs who found the FPI framework operationally onerous.
• Investment caps: While the investor pool has been widened, the 10% individual and 24% aggregate ceilings will be required to be adhered to.
• Land border safeguards: The prior Government approval requirement, both at the investment stage and at the transfer stage, aligns the Schedule III route with the broader FDI policy on beneficial ownership from land-border countries.
• Operational aspect: Investments under this route would be required to be routed through a designated AD branch. AD banks will accordingly need to develop onboarding frameworks for foreign nationals who may not have any pre-existing banking or investment footprint in India.

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