India Broadens Portfolio Investment Framework for Overseas Individuals
Ministry of Finance Expands Eligibility under FEMA Non-Debt Instruments Rules
The Department of Economic Affairs, Ministry of Finance, has notified the Foreign Exchange Management (Non-Debt Instruments) (Third Amendment) Rules, 2026 (“Amendment Rules”) under the Foreign Exchange Management Act, 1999 (“FEMA”), the principal legislative framework regulating foreign exchange transactions and foreign investment in India. The Amendment Rules modify Schedule III of the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 (“NDI Rules”) and implement the proposal announced in the Union Budget 2026-27 to broaden overseas participation in Indian listed securities.
Background
Prior to the Amendment Rules, Schedule III of the NDI Rules permitted only Non-Resident Indians (“NRIs”) and Overseas Citizens of India (“OCIs”) to invest in listed Indian companies under the portfolio investment route. Such investments were subject to prescribed individual and aggregate investment limits.
The Amendment Rules seek to expand the investor base eligible to access Indian listed securities and facilitate increased participation in India’s capital markets.
Key Changes
Expansion of Eligible Investors
The Amendment Rules replace references to “NRI or OCI” in Schedule III with “individual person resident outside India, including an NRI or an OCI”.
Consequently, the portfolio investment route under Schedule III is no longer restricted to NRIs and OCIs and is now available to all individuals resident outside India, subject to applicable foreign investment conditions and sector-specific restrictions.
Revision of Investment Limits
The Amendment Rules also increase the investment thresholds applicable under Schedule III:
| Particulars | Earlier Position | Revised Position |
| Individual holding limit | Less than 5% | Less than 10% |
| Aggregate holding limit | 10% | 24% |
Treatment of Investments Exceeding the Prescribed Threshold
The Amendment Rules introduce a framework for addressing breaches of the individual investment limit. Where an individual person resident outside India exceeds the prescribed 10% threshold, the excess holding must be divested within five trading days from the settlement date.
Failure to undertake such divestment will result in the entire investment being treated as foreign direct investment (“FDI”), and the investor will be restricted from making further portfolio investments in the concerned company. The investor must also notify the depositories and the concerned company through its authorised dealer bank within seven trading days of such breach.
Implications for Market Participants
The Amendment Rules significantly expand the scope of investors eligible to access the portfolio investment framework under Schedule III of the NDI Rules. By extending eligibility beyond NRIs and OCIs to all individuals resident outside India, the amendments broaden the investor base that may participate in Indian listed securities through this route.
The increased individual and aggregate investment thresholds are expected to provide greater flexibility for overseas investors seeking exposure to Indian capital markets. The amendments may also require authorised dealer banks, custodians, brokers and other market intermediaries to review and update existing onboarding, compliance and reporting processes to align with the revised framework.
Investments made under Schedule III will continue to remain subject to applicable sectoral caps, entry routes and other conditions prescribed under India’s foreign investment regime.
Our Comments
The Amendment Rules represent a notable liberalisation of the Schedule III portfolio investment framework under FEMA. By extending eligibility beyond NRIs and OCIs and increasing the applicable investment limits, the Government has expanded access to Indian listed securities for a broader category of overseas investors. The introduction of a clear mechanism for addressing breaches of the prescribed investment threshold also provides greater regulatory certainty regarding the treatment of investments that exceed the permitted limits. The amendments are expected to support increased foreign participation in India’s capital markets while preserving the existing regulatory framework governing foreign investment.
Sources
• Foreign Exchange Management (Non-debt Instruments) (Third Amendment) Rules, 2026, Notification No. S.O. 3030(E), dated 12 June 2026, Ministry of Finance (Department of Economic Affairs), Gazette of India, Extraordinary, Part II, Section 3, Sub-section (ii), available at: https://egazette.gov.in/(S(m2z1c25xtkny0qxh2pgm13oe))/ViewPDF.aspx.
• Foreign Exchange Management (Non-debt Instruments) Rules, 2019, Notification No. S.O. 3732(E), dated 17 October 2019.