Rule 14 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 14 of the Foreign Exchange Management (Overseas Investment) Rules, 2022 covers a person resident in India who is neither an Indian entity nor a resident individual, and sends that person to Schedule IV. The Schedule has five paragraphs for five classes: registered trusts and societies in education or hospitals; mutual funds, venture capital funds and alternative investment funds; clearing corporations of stock exchanges and their clearing members; domestic depositories issuing Indian Depository Receipts; and AD banks. This article reads rule 14 and each paragraph.
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. For a fund or trust planning an investment abroad, our FEMA advisory service can help.
A registered trust or society engaged in education or running hospitals may make ODI with prior Reserve Bank approval in a foreign entity in the same sector, if it has existed at least three financial years, its deed or rules permit it, its trustees or governing body approve it and any special licence has been obtained. Mutual funds, VCFs and AIFs may acquire foreign securities as SEBI stipulates, within an aggregate limit set by the Reserve Bank, and it is all treated as OPI. Clearing corporations, domestic depositories and AD banks have their own narrow permissions.
Rule 14
Rule 14 says: "A person resident in India, other than an Indian entity and a resident individual, may make Overseas Investment in the manner and subject to the terms and conditions prescribed in Schedule IV." The Schedule is headed "". "Indian entity" is a company, body corporate, LLP or registered partnership firm (rule 2(1)(j)); so a trust, a society and a fund fall here. See our article on Indian entity, net worth and strategic sector.
Paragraph 1: ODI by a registered trust or society
A person being a registered Trust or a registered Society "engaged in the educational sector or which has set up hospitals in India" may make ODI in a foreign entity with the prior approval of the Reserve Bank, subject to the following:
| Clause | Condition |
|---|---|
| (i) | The foreign entity is engaged in the same sector that the Indian Trust or Society is engaged in |
| (ii) | The Trust or Society has been in existence for at least three financial years before the year in which the investment is made |
| (iii) | The trust deed (for a Trust), or the memorandum of association or rules or bye-laws (for a Society), permits the proposed ODI |
| (iv) | The investment has the approval of the trustees (for a Trust) and the governing body or council or managing or executive committee (for a Society) |
| (v) | If the Trust or Society needs a special licence or permission from the Ministry of Home Affairs, Central Government, or the relevant local authority, it has been obtained and submitted to the designated AD bank |
"Trust" is defined in rule 2(1)(zb) as a trust registered under the "Indian Trust Act, 1882", as printed, and "Society" in rule 2(1)(x) as one registered under the Societies Registration Act, 1860. The Master Direction - Overseas Investment, updated as on April 01, 2026, says in paragraph 23(6) that overseas investment by a registered trust or society may be made under the approval route in accordance with paragraph 1 of Schedule IV.
Paragraph 2: mutual funds, VCFs and AIFs
- Sub-paragraph (1): A mutual fund or Venture Capital Fund or Alternative Investment Fund may acquire or transfer foreign securities as stipulated by SEBI from time to time in accordance with the Rules and subject to other terms and conditions laid down by the Reserve Bank and SEBI. The first proviso says the aggregate limit for such investment shall be decided by the Reserve Bank in consultation with the Central Government; the second says the individual limits shall be as per SEBI's instructions.
- Sub-paragraph (2): Every transaction relating to the purchase and sale of foreign security by these funds shall be routed through the designated AD bank in India.
- Sub-paragraph (3): "Notwithstanding anything contained in these rules", any investment under the Rules by mutual funds, VCFs and AIFs shall be treated as OPI.
The Explanation says "Alternative Investment Fund" means any fund registered as such with SEBI. Rule 2(1)(zc) defines "Venture Capital Fund" the same way and rule 2(1)(o) defines "mutual fund" as a fund registered with SEBI.
The Master Direction (paragraph 23(1) and (2)) states, as the Reserve Bank's direction, overall caps of USD 7 billion for mutual funds and USD 1.5 billion for VCFs and AIFs, and that a limited number of qualified mutual funds may invest cumulatively up to USD 1 billion in overseas Exchange Traded Funds as SEBI permits; and that funds wanting to use this facility approach SEBI, with general permission available for sale of securities so acquired. These figures are from the Master Direction, updated as on April 01, 2026, and are not in the Rules. Our article on funds, IFSC and immovable property abroad takes that paragraph forward.
Paragraph 3: clearing corporations and clearing members
A SEBI approved clearing corporation of a stock exchange and its clearing members may acquire, hold and transfer foreign securities offered as collateral by foreign portfolio investors and, subject to SEBI guidelines:
- (i) open and maintain a Demat Account with foreign depositories;
- (ii) remit the proceeds arising due to such action, if any; and
- (iii) liquidate such foreign securities and repatriate the proceeds to India.
Paragraph 4: domestic depository and IDRs
A domestic depository may acquire, hold and transfer foreign securities of a foreign entity, being the underlying security to issue Indian Depository Receipts as authorised by that foreign entity or its overseas custodian bank. A person investing in IDRs may either sell or continue to hold the foreign securities in accordance with the conditions in the Rules and the Overseas Investment Regulations, 2022 upon conversion. The IDR framework for inbound issue is in our article on Schedules IX and X of the Non-debt Instruments Rules.
Paragraph 5: AD banks
An AD bank, including its overseas branch, may acquire or transfer foreign securities in accordance with the terms of the host country or host jurisdiction in the normal course of its banking business. The Master Direction (paragraph 23(3)) adds that the Rules and Regulations do not apply to such acquisition or transfer by an AD bank, and (paragraph 23(4)) that a bank in India licensed under the Banking Regulation Act, 1949 may acquire shares of the Society for Worldwide Interbank Financial Telecommunication as per its by-laws if the Reserve Bank has permitted the bank to join the SWIFT User's Group in India. The Banking Regulation Act, 1949 is named as printed and nothing is explained about it here.
Other persons in the Master Direction
The Master Direction (paragraph 23(5)) says overseas investment by sole proprietorships or unregistered partnership firms may be made by the proprietor or the individual partners within their limit under the Liberalised Remittance Scheme in accordance with Schedule III, and that if the proposed investment is in a strategic sector, an application for investment above that limit may be made under the government approval route. That is the Reserve Bank's direction and not text of Schedule IV. For the Scheme see our article on the Liberalised Remittance Scheme.
A worked example
Greenfield Education Trust, registered as a trust and running schools in India for six years, wants to set up a school abroad. Paragraph 1 allows ODI with the prior approval of the Reserve Bank if the foreign entity is in the same sector, the trust deed permits the investment, the trustees approve it, and any special licence from the Ministry of Home Affairs has been submitted to the designated AD bank. The three-year existence condition is met. Separately, Sparrow Growth Fund, an AIF registered with SEBI, buys foreign securities as SEBI stipulates; under paragraph 2(3) the investment is treated as OPI and all its transactions go through the designated AD bank. The names are invented.
Need help with overseas investment by a fund or trust?
Approval by the Reserve Bank, the trust deed and the licence all have to line up before the first remittance. Our FEMA advisory team can check the conditions in Schedule IV against the trust's papers.
Key takeaways
- Rule 14 covers residents other than Indian entities and resident individuals.
- Trusts and societies in education or hospitals: ODI with prior Reserve Bank approval, same sector, at least three financial years of existence, deed and governing body approval.
- Mutual funds, VCFs and AIFs: foreign securities as SEBI stipulates; aggregate limit by the Reserve Bank; treated as OPI; transactions through the designated AD bank.
- Clearing corporations, domestic depositories and AD banks have specific permissions.
- The Master Direction's USD caps are its own statements.
Read next
- Overseas portfolio investment by an Indian entity: Schedule II
- Overseas investment in an IFSC: Schedule V
- Investment vehicles: AIF, REIT and InvIT, Schedule VIII
- Overseas direct investment under FEMA
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.