Rule 12 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Rule 12 of the Foreign Exchange Management (Overseas Investment) Rules, 2022 sends an Indian entity that wants to make overseas portfolio investment (OPI) to Schedule II. The Schedule is short: a cap of fifty percent of net worth, permission for a listed Indian company to make OPI including by reinvestment, and a narrower set of routes for an unlisted Indian entity. This article reads rule 12, Schedule II and the definitions of OPI and the related terms.
The Rules are quoted as notified on 22 August 2022 (G.S.R. 646(E)); no amendment is in the texts consulted. Amendments after that date should be checked in the Gazette. They rest on section 46 of the Foreign Exchange Management Act, 1999; see our article on section 46 of the Act. Reporting of OPI is covered by our overseas direct investment reporting service and the Regulations' live article on regulation 10.
An Indian entity may make OPI not exceeding fifty percent of its net worth as on the date of its last audited balance sheet. A listed Indian company may make OPI including by way of reinvestment. An unlisted Indian entity may make OPI only by rights or bonus shares, capitalisation of dues, swap of securities, or merger, demerger, amalgamation or arrangement (clauses (iii) to (vi) of Schedule I, paragraph 1(2)). OPI is investment other than ODI in foreign securities, not in unlisted debt instruments or in securities issued by a resident outside an IFSC.
Rule 12
Rule 12 reads: "An Indian entity may make Overseas Portfolio Investment in the manner and subject to the terms and conditions prescribed in Schedule II." Schedule II is headed "" and "Manner of making Overseas Portfolio Investment by an Indian entity".
What OPI is: rule 2(1)(s)
"Overseas Portfolio Investment" or "OPI" means investment, other than ODI, in foreign securities, but not in any unlisted debt instruments or any security issued by a person resident in India who is not in an IFSC. The proviso says OPI in the equity capital of a listed entity, even after its delisting, continues to be treated as OPI until any further investment is made in the entity. The Explanation says "debt instruments" are those specified in clause (A) of rule 5. The line between OPI and ODI is explained in our article on ODI, OPI, financial commitment and control.
"Listed Indian company" is defined in rule 2(1)(n): an Indian company with equity shares or any of its fully and compulsorily convertible instruments listed on a recognised stock exchange in India. "Mutual fund" in clause (o) is any fund registered with SEBI. "Listed foreign entity" in clause (m) is one whose equity shares or any other fully and compulsorily convertible instrument is listed on a recognised stock exchange outside India.
Schedule II, paragraph 1
Sub-paragraph (1): the fifty percent cap
An Indian entity may make OPI "which shall not exceed fifty percent of its net worth as on the date of its last audited balance sheet, in the manner and subject to the conditions laid down in this Schedule". Net worth is rule 2(1)(p); the last audited balance sheet is rule 2(1)(l), as on a date not exceeding eighteen months before the transaction. Both are explained in our article on Indian entity, net worth and strategic sector.
Sub-paragraph (2): listed Indian company
A listed Indian company may make OPI including by way of reinvestment. The Master Direction - Overseas Investment, updated as on April 01, 2026, explains in paragraph 1(ix)(c), as the Reserve Bank's own words, that "reinvestment" means the OPI proceeds are exempted from repatriation provisions as long as they are reinvested within the time specified for realisation and repatriation under the Realisation, Repatriation and Surrender Regulations, 2015. The Rules do not define reinvestment.
Sub-paragraph (3): unlisted Indian entity
An unlisted Indian entity may make OPI only under clauses (iii), (iv), (v) and (vi) of sub-paragraph (2) of paragraph 1 of Schedule I:
| Clause of Schedule I, paragraph 1(2) | Way |
|---|---|
| (iii) | Acquisition of equity capital by way of rights issue or allotment of bonus shares |
| (iv) | Capitalisation, within the time period, if any, specified for realisation under the Act, of any amount due from the foreign entity, the remittance of which is permitted or needs no prior permission |
| (v) | Swap of securities |
| (vi) | Merger, demerger, amalgamation or any scheme of arrangement as per the applicable laws in India or the host country |
Items (i) and (ii), subscription or purchase and bidding or tender, are not open to an unlisted Indian entity for OPI under this sub-paragraph. These routes are explained in our article on the manner of making ODI.
What the Master Direction adds on OPI
The Master Direction's paragraph 1(ix) gives the Reserve Bank's explanations of OPI. Among them:
- OPI shall not be made in unlisted debt instruments, in any security issued by a person resident in India who is not in an IFSC, in any derivatives unless the Reserve Bank permits, or in any commodities including Bullion Depository Receipts.
- After delisting, any further investment in the equity capital of the foreign entity is made as ODI.
- An investment (including sponsor contribution) in units or any other instrument issued by an investment fund overseas, duly regulated by the regulator for the financial sector in the host jurisdiction, is OPI; in IFSCs an unlisted Indian entity may also make such OPI in terms of Schedule V.
- Investment made overseas under Schedule IV by mutual funds, venture capital funds and alternative investment funds registered with SEBI is OPI.
Those points are the Reserve Bank's statements; the derivatives and commodities bar and the delisting consequence in particular are not printed in the Rules. The Schedule V and Schedule IV rules are in our articles on overseas investment in an IFSC and on trusts, societies, funds and banks.
A worked example
Elmstead Industries Limited is a listed Indian company with a net worth of 200 on its last audited balance sheet. It may make OPI up to 100, which is fifty percent of that net worth, in listed foreign shares. If it sells some of the shares and reinvests the proceeds within the time allowed for realisation, the Master Direction describes that as reinvestment. Separately, Fenwick Crafts Private Limited, an unlisted Indian company, wants to buy listed foreign shares on an overseas exchange. Under sub-paragraph (3) it cannot do so by purchase; it could receive such shares through a swap of securities, for example. The figures are invented and carry no unit; the names are invented too.
Need help with overseas portfolio investment?
Whether a holding is OPI or ODI, and whether an unlisted entity can use the route it has in mind, are the first questions. Our overseas direct investment reporting team can classify the holding and file the OPI form.
Key takeaways
- Rule 12 sends an Indian entity to Schedule II for OPI.
- Cap: fifty percent of net worth as on the last audited balance sheet.
- A listed Indian company may include reinvestment.
- An unlisted Indian entity may make OPI only by rights or bonus, capitalisation, swap or merger and similar schemes.
- OPI excludes unlisted debt instruments and securities of a resident outside an IFSC; after delisting, further investment is ODI per the Master Direction.
Read next
- Manner of making ODI by an Indian entity: Schedule I, paragraph 1
- Overseas investment by resident individuals: Schedule III
- Trusts, societies, funds and banks: Schedule IV
- ODI: financial commitment and reporting
Disclaimer: Based on the Gazette text of the instrument this article names, as notified and as amended by the notifications named in the article (for the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 the latest amendment consulted is S.O. 4870(E) dated 2 September 2026), as consulted on 2 October 2026. There is no official consolidated text; the provisions were read with each amendment applied. Sectoral caps, entry routes, conditions, forms and time limits change by notification, press note and circular; later changes should be checked on the Gazette, DPIIT and Reserve Bank sites. This article is general information, not legal advice; check the official text before acting.