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Economic, Commercial and Intellectual Property Laws · Foreign Direct Investments - Regulations and Policy

Investment Vehicles: FPI, NRI, LLP and Start-ups Explained

Updated 11 October 2026 · Fact-checked

Foreign investment in India comes through different vehicles, each with its own rules. FDI is long-term investment with control; FPI is portfolio investment in listed securities; NRIs invest on repatriation or non-repatriation basis; LLPs, FVCIs and start-ups have separate conditions. To answer, identify the investor, instrument, route, limit and repatriability.

Understand Investment Vehicles: FPI, NRI, LLP, Start-ups and Others

Foreign investment into India is a capital account transaction. Under section 6 of FEMA, the Reserve Bank specifies permissible classes of capital account transactions involving debt instruments, and the Central Government prescribes those not involving debt instruments, along with limits and conditions. So every vehicle you study here works within rules made under FEMA, not within the Act's own text.

Start with the basic split. FDI is investment in the equity of an unlisted Indian company, or in 10% or more of the post-issue paid-up equity capital of a listed company, on a fully diluted basis. It is meant to be long-term and carries a lasting interest. FPI is investment by a registered foreign portfolio investor in listed securities, with each investor holding below 10% of the paid-up equity of an Indian company. If the 10% limit is crossed, the holding must be reclassified as FDI within the permitted time, or sold down. Money invested as FPI is not meant to be sticky.

NRIs get special treatment. They may invest on a repatriation basis, where sale proceeds and income can be sent abroad through an authorised dealer bank, or on a non-repatriation basis, where funds stay in India and are credited to a non-resident (ordinary) account. Investment on a non-repatriation basis is treated as a domestic investment, and funds flow through NRO accounts. Repatriation-basis investment is routed through NRE or FCNR(B) accounts or a similar permitted channel.

LLPs can receive foreign investment only in sectors where 100% FDI is allowed under the automatic route and there are no FDI-linked performance conditions. The investment is by way of capital contribution or acquisition of profit share. LLPs with foreign investment can make downstream investment only in companies or LLPs in sectors with 100% automatic route and no performance-linked conditions. Other vehicles include FVCIs (foreign venture capital investors, registered with SEBI), investment vehicles such as REITs, InvITs and AIFs, and start-ups, which can receive foreign investment under the automatic route in eligible sectors and may issue convertible notes to non-residents.

Treat the exact percentages, thresholds and conditions above as the framework set in the FEMA non-debt instruments rules and the FDI policy. Check the latest ICSI study material and amendments before the exam, because limits and conditions change.

Key rules to remember

Source of power
Section 6(2): RBI specifies debt-instrument transactions; Section 6(2A): Central Government prescribes non-debt-instrument transactions
Both are made in consultation with each other. Limits and conditions come from these rules.
FDI vs FPI threshold
FDI: unlisted company, or 10% or more of post-issue paid-up equity of a listed company (fully diluted). FPI: below 10% per investor
Crossing 10% as an FPI means the holding must be brought within the FDI framework or sold down.
NRI investment bases
Repatriation basis: proceeds can be sent abroad. Non-repatriation basis: proceeds stay in India
Non-repatriation investment is treated as a domestic investment.
LLP condition
Foreign investment in LLP: only in sectors with 100% automatic route and no FDI-linked performance conditions
Downstream investment by such an LLP is subject to the same condition.
Resident holding of foreign assets
Section 4: no resident in India shall acquire, hold, own, possess or transfer foreign exchange, foreign security or immovable property outside India, save as otherwise provided
Section 6(4) protects assets acquired or inherited when the person was resident outside India.

How to solve Investment Vehicles: FPI, NRI, LLP, Start-ups and Others questions

Use the same method for any question on investment vehicles. It keeps your answer in the provision, facts, conclusion format.

  1. 1Identify the investor: foreign company, FPI, NRI, FVCI, or a foreign investor into an LLP or start-up.
  2. 2Identify the investee: listed or unlisted company, LLP, start-up, or investment vehicle such as an AIF.
  3. 3Decide whether it is FDI or FPI using the 10% test for listed companies, applied on a fully diluted basis.
  4. 4Check the route: automatic or government, and whether the sector has a cap or conditions.
  5. 5Check repatriability, especially for NRIs: repatriation or non-repatriation basis, and the account used.
  6. 6Check special conditions, such as the LLP sector condition or start-up eligibility.
  7. 7State that the transaction is a capital account transaction governed by section 6 of FEMA and the rules made under it.
  8. 8Give a clear conclusion: permitted, permitted with conditions, or not permitted.

Quickest way: Four-question filter

When to use it: Use when you have limited time on a short-note or case question.

  1. Who is investing: FPI, NRI, FVCI or other?
  2. In what: listed company, unlisted company, LLP, start-up?
  3. How much: below or at 10% of a listed company?
  4. Can money go back abroad: repatriation or non-repatriation?
  5. Write the answer in that order and end with a one-line conclusion.

Common mistakes in Investment Vehicles: FPI, NRI, LLP, Start-ups and Others

  • Treating any foreign shareholding in a listed company as FPI

    Students remember the label, not the threshold.

    Fix: Apply the 10% test on a fully diluted basis. At or above 10% it is FDI territory.

  • Saying NRI non-repatriation investment is FDI-regulated like foreign investment

    NRIs are non-residents, so students assume the same treatment.

    Fix: State that investment on a non-repatriation basis is treated as a domestic investment.

  • Allowing LLP investment in any sector

    Students assume LLPs follow company rules fully.

    Fix: Write that only sectors with 100% automatic route and no performance-linked conditions qualify.

  • Quoting a section of FEMA for percentage limits

    Students expect limits inside the Act.

    Fix: Say that limits are set by rules and regulations under section 6, with rule-making powers in sections 46 and 47.

  • Mixing up FVCI and AIF rules

    Both are venture-type vehicles.

    Fix: Define each separately: FVCI is a foreign investor registered with SEBI; AIF is an Indian pooled vehicle.

Worked examples

Example 1

A foreign portfolio investor holds 6% of the paid-up equity of a listed Indian company and buys more shares taking it to 12%. Explain the position.

Show the solution
  1. Provision: an FPI may invest in listed securities, each investor holding below 10% of the paid-up equity of the company.
  2. Facts: the holding moves from 6% to 12%, which crosses 10%.
  3. Analysis: 12% is above the 10% threshold, so it is no longer portfolio investment. It must be treated as FDI or reduced below the limit within the permitted time.
  4. The investment is a capital account transaction under section 6 of FEMA, governed by the rules made under it.

Answer: The holding exceeds the 10% FPI limit. The investor must either bring the excess within the FDI framework, subject to sectoral cap, route and pricing conditions, or sell down the excess within the permitted time.

Example 2

An NRI wants to invest in an Indian LLP engaged in a sector where 100% FDI is allowed under the automatic route with no performance conditions. Can she, and what should she note about repatriation?

Show the solution
  1. Provision: foreign investment in an LLP is allowed only in sectors with 100% automatic route and no FDI-linked performance conditions.
  2. Facts: the sector satisfies both conditions.
  3. Analysis: the investment is by capital contribution or acquisition of profit share, and is permitted.
  4. Repatriation: if made on a repatriation basis, proceeds can be sent abroad through an authorised dealer bank. If on a non-repatriation basis, it is treated as a domestic investment and funds stay in India.

Answer: Yes, the NRI can invest. Repatriability depends on the basis chosen: repatriation basis allows funds to go abroad, while non-repatriation basis keeps them in India.

Exam tips

  • Write the provision first, then facts, then a one-line conclusion, as ICSI expects.
  • For differences such as FDI versus FPI, use a clear two-column style list in bullets covering investor, instrument, threshold, nature and exit.
  • Do not quote a section number for limits. Use sections 6, 46 and 47 only for the source of power.
  • Attempt NRI questions by naming both bases and the account used for each.
  • Revise latest amendments before the exam, as thresholds and conditions can change.

Practice questions from Foreign Direct Investments - Regulations and Policy

Investment Vehicles: FPI, NRI, LLP, Start-ups and Others in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Investment Vehicles: FPI, NRI, LLP, Start-ups and Others: frequently asked questions

What is the difference between FDI and FPI?

FDI is long-term investment, in unlisted companies or at 10% or more of a listed company's equity. FPI is investment in listed securities with each investor below 10%. FDI implies lasting interest, while FPI is more liquid.

What is the difference between repatriation and non-repatriation investment by NRIs?

On a repatriation basis, sale proceeds and income can be sent abroad through an authorised dealer. On a non-repatriation basis, funds remain in India, and the investment is treated as domestic.

Can foreign investors invest in an LLP?

Yes, but only in sectors where 100% FDI is allowed under the automatic route and there are no FDI-linked performance conditions. Such LLPs can invest downstream only under the same condition.

Where do the limits for foreign investment come from?

Section 6 of FEMA empowers the Reserve Bank and the Central Government to specify permissible capital account transactions, limits and conditions. These are then set out in rules and regulations made under sections 46 and 47.