Rules 10 and 11 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.
Chapter IV of the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 has two rules for foreign portfolio investors. Rule 10 says what an FPI may buy and sell: equity instruments of listed or to-be-listed Indian companies and other securities under Schedule II, and Indian Depository Receipts under Schedule X. Rule 11 says how an FPI may transfer what it holds. Rule 11 was substituted in full on 5 December 2019.
This article is based on the Rules as notified on 17 October 2019 (S.O. 3732(E)) as amended by the notifications named in this article; the latest amendment consulted is S.O. 4870(E) dated 2 September 2026. Amendments made after that date should be checked in the Gazette. There is no official consolidated text; rule 10 is as notified and rule 11 is read as substituted. For other investor classes, see our FEMA advisory service.
Rule 10(1): an FPI may purchase or sell equity instruments of an Indian company listed or to be listed on a recognised stock exchange and securities other than equity instruments, under Schedule II. A Note lets it trade in exchange traded derivative contracts approved by SEBI within SEBI's limits. Rule 10(2): an FPI may purchase, hold or sell IDRs under Schedule X. Rule 11, as substituted by S.O. 4355(E) of 5 December 2019: an FPI may transfer holdings under the Schedules and SEBI's terms; prior Government approval is needed for any transfer in a sector requiring it; and an FPI that breaches a limit follows Schedule II paragraph 1(a)(iii).
Rule 10: investment by an FPI
Rule 10 is headed "Investment by FPI". Its two sub-rules are as notified; none of the 19 amending notifications up to 2 September 2026 changes them.
Sub-rule (1). An FPI may purchase or sell equity instruments of an Indian company which is listed or to be listed on a recognised stock exchange in India, and/or may purchase or sell securities other than equity instruments, in the manner and subject to the terms and conditions specified in Schedule II.
Note. An FPI may trade or invest in all exchange traded derivative contracts approved by the Securities and Exchange Board of India from time to time, subject to the limits specified by SEBI and the conditions prescribed in Schedule II.
Sub-rule (2). An FPI may purchase, hold or sell Indian Depository Receipts of companies resident outside India and issued in the Indian capital market, in the manner and subject to the terms and conditions prescribed in Schedule X.
Who counts as an FPI is settled by rule 2(u): a person registered under the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2014, which the Rules name as printed; check the SEBI regulations now in force. What counts as foreign portfolio investment, and the ten per cent line, is explained in our article on FDI, foreign portfolio investment and the sectoral cap. The limits and conditions in Schedule II are explained in two articles: individual and aggregate FPI limits and public offers, short selling and fund units. IDRs are explained in our article on Schedules IX and X.
Rule 11: transfer by an FPI
As notified and as substituted
As notified, rule 11 was headed "Transfer of equity instruments of an Indian company by FPI" and had a clause (1) permitting sale or gift to any person resident outside India, an Explanation covering liquidation, merger, de-merger and amalgamation of foreign entities, and a proviso in two items. S.O. 4355(E), the Foreign Exchange Management (Non-debt Instruments) (Amendment) Rules, 2019 (5 December 2019) substituted the whole rule. The substituted rule is the current text:
"A FPI holding equity instruments of an Indian company or units in accordance with these rules, may transfer such equity instruments or units held by him in compliance with the conditions, if any, specified in the Schedules annexed to these rules, subject to the terms and conditions specified therein and by the Securities and Exchange Board of India:
Provided that, (i) prior Government approval shall be obtained for any transfer in case the company is engaged in a sector which requires the Government approval; (ii) where the acquisition of equity instruments by FPI under Schedule II has resulted in a breach of the applicable aggregate FPI limits or sectoral limits the provisions of item (iii) of sub-paragraph (a) of paragraph (1) of Schedule II shall apply."
| Feature | 2019 text as notified | Rule 11 as substituted on 5 December 2019 |
|---|---|---|
| Who may be the transferee | Any person resident outside India, by sale or gift | Not stated in the rule; conditions in the Schedules and SEBI's terms govern |
| Explanation on liquidation, merger, demerger | Present | Not repeated |
| Prior Government approval | Proviso (i) | Proviso (i), same effect |
| Breach of limits | Proviso (ii), the Schedule II item applies | Proviso (ii), same effect |
The substituted rule no longer says in terms that an FPI may sell or gift to a person resident outside India, and it does not repeat the Explanation. The rule's remaining text points to the Schedules and to SEBI's terms, and it is read with rule 9(1), which permits a non-resident who is not an individual or an erstwhile overseas corporate body to transfer to any non-resident; see our article on sale of shares between residents and non-residents.
The breach proviso and Schedule II
Proviso (ii) points to item (iii) of sub-paragraph (a) of paragraph (1) of Schedule II. That item was itself substituted by S.O. 1374(E), the Foreign Exchange Management (Non-debt Instruments) (Second Amendment) Rules, 2020 (27 April 2020). As substituted, FPIs investing in breach of the prescribed limit have the option of divesting their holdings within five trading days from the date of settlement of the trades causing the breach. If the FPI chooses not to divest, the entire investment in the company by the FPI and its investor group is considered as investment under FDI, and the FPI and its investor group shall not make further portfolio investment in the company. The FPI, through its designated custodian, is to bring this to the notice of the depositories and the company within seven trading days from the date of settlement of the trades causing the breach. The breach for the period between acquisition and sale or conversion to FDI within the prescribed time is not reckoned as a contravention under the Rules. These details belong to Schedule II and are repeated here only because rule 11 sends the reader to them.
The Reserve Bank's Master Direction - Foreign Investment in India, updated up to June 15, 2026, restates the transfer rules for FPIs in its paragraph 7.1.4 (five trading days after settlement) and refers to a Reserve Bank circular on reclassification of portfolio investment as FDI. That circular is not in the texts consulted.
For wider background, see our guides on foreign portfolio investment in India, FPI investment limits and the SEBI FPI regulations.
A worked example
Nordvik Fund, registered as an FPI, buys shares of Lakshya Components Limited, a listed company, on the stock exchange under rule 10(1) and Schedule II. A later purchase takes the investment above the applicable aggregate limit. Under rule 11(ii) and the Schedule II item, Nordvik Fund may divest the excess within five trading days of settlement; if it does not, its whole holding and that of its investor group is reclassified as FDI and no further portfolio purchases are allowed. If Lakshya is in a sector that requires Government approval, a later transfer of the holding needs that approval first.
Need help with portfolio investment compliance?
Where an FPI's holding approaches a limit or a sector needs approval, the position should be checked before the next trade. Our FEMA advisory team can review it with you.
Key takeaways
- Rule 10(1) lets an FPI buy and sell equity instruments of listed or to-be-listed Indian companies and other securities under Schedule II.
- The Note allows exchange traded derivative contracts approved by SEBI within SEBI's limits.
- Rule 10(2) allows an FPI to hold IDRs under Schedule X.
- Rule 11 was substituted on 5 December 2019; it requires prior Government approval in sectors that need it and sends limit breaches to Schedule II.
- Schedule II gives five trading days to divest and seven trading days to notify, as substituted on 27 April 2020.
Read next
- Schedule II to the FEM (Non-debt Instruments) Rules, 2019: individual and aggregate FPI limits
- Schedule II to the FEM (Non-debt Instruments) Rules, 2019: FPI public offers, short selling and fund units
- Schedules IX and X to the FEM (Non-debt Instruments) Rules, 2019: depository receipts and Indian depository receipts
- Rule 9(1) to (3) of the FEM (Non-debt Instruments) Rules, 2019: sale of shares between residents and non-residents
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.