Overseas Direct Investment (ODI) is an investment by a person resident in India in the equity capital of a foreign entity, made under the Foreign Exchange Management (Overseas Investment) Rules, 2022, under FEMA, 1999. It covers any stake in an unlisted foreign entity, 10% or more of a listed entity, or any stake that confers control. ODI lets Indian businesses and residents own foreign subsidiaries and joint ventures, subject to RBI conditions.
What Is ODI? Definition
Under the Foreign Exchange Management (Overseas Investment) Rules, 2022, ODI means acquiring unlisted equity capital of a foreign entity, subscribing to its memorandum of association, holding 10% or more of a listed foreign entity, or holding a listed stake below 10% that carries control. In plain terms, ODI is a controlling or long-term equity interest in a company abroad, set apart from a small, passive holding, which is treated instead as Overseas Portfolio Investment (OPI).
Governing Law and Rules
ODI is a capital account transaction regulated under Section 6(3) of the FEMA, 1999. The operative framework is the Foreign Exchange Management (Overseas Investment) Rules, 2022, notified by the Ministry of Finance, read with the RBI’s Overseas Investment Regulations and Directions, 2022. The regime took effect on 22 August 2022, superseding the 2004 Foreign Security regulations, and is administered by the RBI through Authorised Dealer (AD) banks.
Key Features and Tests
ODI conducts a few load-bearing tests that determine whether a transaction is a direct investment, how much may be sent abroad, and what must be reported each year. The 2022 regime also replaced the older “joint venture” and “wholly owned subsidiary” labels with a single “foreign entity” concept, and set a statutory “control” test at 10% or more of voting rights.
The defining tests and limits are:
| No | Ley Feature | Particulars |
|---|---|---|
| 1 | Unlisted foreign entity | Any equity acquisition counts as ODI, whatever the percentage held. |
| 2 | Listed foreign entity | 10% or more of paid-up equity, or any stake carrying control, is ODI; Below 10% without control, the investment is considered an Overseas Portfolio Investment (OPI) |
| 3 | Automatic Route | Under the automatic route, an Indian entity is permitted to make overseas direct investment (ODI) up to 400% of its total net worth. |
| 4 | Annual filings | Annual Performance Report: by 31 December FLA Return by 15 July each year. |
Related Terms
- Foreign Direct Investment (FDI)
- Overseas Portfolio Investment
- FLA Return
- Annual Performance Report (APR)
- Liberalised Remittance Scheme (LRS)
Frequently Asked Questions
No. ODI is a direct, usually controlling interest — any stake in an unlisted foreign entity, 10% or more of a listed one, or any listed stake carrying control. OPI is a passive holding of less than 10% in a listed foreign entity without control. Both sit under the Overseas Investment Rules, 2022, but carry different limits and reporting duties.
Both. The Overseas Investment Rules, 2022, allow ODI by Indian entities — companies, LLPs and registered partnerships — and by resident individuals under the Liberalised Remittance Scheme. Each investor is assessed separately, with its own limit, rather than as a single “Indian party” as under the pre-2022 regime.
An ODI holder files two annual returns with the RBI through its AD bank. The Annual Performance Report (Form ODI Part II) is due by 31 December for each foreign entity, under Rule 23 of the Overseas Investment Rules, 2022. The FLA Return, capturing the position as on 31 March, is due by 15 July.
References
- Foreign Exchange Management Act, 1999 – Section 6(3)
- Foreign Exchange Management (Overseas Investment) Rules, 2022
- Foreign Exchange Management (Overseas Investment) Regulations, 2022
- Foreign Exchange Management (Overseas Investment) Directions, 2022
- FLA Return — RBI A.P. (DIR Series) Circular No. 45 dated 15 March 2011.
