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CS Professional · Strategic Management and Corporate Finance · Foreign Funding - Institutions

Which of the following is an instrument eligible for FDI in an Indian company under FEMA rules as an equity instrument?

Equity shares, fully and compulsorily convertible preference shares and debentures, and warrants qualify as FDI instruments. Instruments that are optionally convertible, non-convertible or redeemable for cash are treated as debt, governed by the external commercial borrowing rules rather than the FDI policy.

  1. AEquity shares, fully, compulsorily and mandatorily convertible preference shares and debentures, and warrantsCorrect
  2. BOptionally convertible debentures that the holder may redeem for cash after one year
  3. CNon-convertible redeemable preference shares
  4. DPartly convertible debentures with a cash redemption option

Explanation

FDI instruments are equity shares, compulsorily convertible preference shares, compulsorily convertible debentures, and warrants, with pricing fixed at issue. Instruments with an option to redeem or not fully convertible are treated as debt and fall under the external commercial borrowing framework, not FDI.

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