Master Direction 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.
This article reads four paragraphs of the Reserve Bank's Master Direction on overseas investment that deal with persons and places outside the plain Indian-company-invests-abroad case: the restrictions and prohibitions in paragraph 20, investment by persons who are neither Indian entities nor resident individuals in paragraph 23 (mutual funds, venture and alternative investment funds, banks, proprietors, trusts), investment in an International Financial Services Centre in India in paragraph 24, and immovable property abroad in paragraph 25.
As per the Master Direction, updated as on April 01, 2026, authorised dealers shall not facilitate a transaction with a foreign entity in a prohibited activity under rule 19(1) of the OI Rules or in a jurisdiction the Central Government advises, and a structure with more than two layers of subsidiaries is not permitted where the foreign entity invests into India. Mutual funds have an overall cap of USD 7 billion and venture and alternative investment funds USD 1.5 billion. An Indian entity with an overseas office may acquire immovable property abroad for its staff within the limits for initial expenses (15 per cent of average turnover or up to 25 per cent of net worth, whichever is higher) and recurring expenses (10 per cent of average turnover), as printed.
The text and its footing
The Master Direction - Overseas Investment is FED Master Direction No.15/2024-25, July 24, 2024, "Updated as on April 01, 2026", issued to Authorised Dealer Category - I banks under sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999. See our articles on section 10, sections 11 and 12 and section 4. It is a direction to banks, not a rule. Rules 9(2), 19 and 21 and Schedules III, IV and V of the Overseas Investment Rules, 2022 are not in the sources consulted. Later amendments and circulars should be checked on the Reserve Bank site. For an investment through an IFSC or a fund, our ODI reporting team can help you place it.
Paragraph 20: restrictions and prohibitions
20(1). AD banks shall not facilitate any transaction in respect of a foreign entity engaged in an activity mentioned in rule 19(1) of the OI Rules, or located in countries or jurisdictions advised by the Central Government under rule 9(2). The paragraph clarifies that financial products linked to Indian Rupee include non-deliverable trades involving foreign currency-INR exchange rates, stock indices linked to the Indian market, and the like.
20(2). A financial commitment in a foreign entity that has invested or invests into India, at the time of the commitment or later, directly or indirectly, resulting in a structure with more than two layers of subsidiaries, is not permitted under rule 19(3) of the OI Rules. No further layer of subsidiary may be added to any structure existing with two or more layers after notification of the OI Rules and Regulations. The Note says "subsidiary" has the meaning in the OI Rules, an entity in which the foreign entity has control, which includes a stake of 10% or more. For the wider subject see our guides on round tripping restrictions and round tripping structures under rule 19.
Paragraph 23: persons other than Indian entities and resident individuals
A person resident in India other than an Indian entity or a resident individual may make overseas investment in accordance with Schedule IV of the OI Rules (not in the sources consulted). The Master Direction adds:
| Sub-para | Who | What it says |
|---|---|---|
| (1) | Mutual Funds, and Venture Capital Funds or Alternative Investment Funds registered with SEBI | May invest overseas in securities as stipulated by SEBI, within an overall cap of USD 7 billion (MFs) and USD 1.5 billion (VCFs/AIFs). A limited number of qualified MFs may invest cumulatively up to USD 1 billion in overseas Exchange Traded Funds as SEBI may permit. Such investment is OPI whether the securities are listed or not |
| (2) | The same | Approach SEBI for permission; modalities (eligibility, individual limits, recognised exchanges, investible universe, monitoring of aggregate ceilings) are per SEBI guidelines. General permission is available for sale of securities so acquired |
| (3) | An AD bank, including its overseas branch | May acquire or transfer foreign securities under host country laws in the normal course of banking business; the OI Rules and Regulations do not apply to that |
| (4) | A bank in India licensed under the Banking Regulation Act, 1949 | May acquire shares of SWIFT as per its by-laws, if the bank has been permitted by the Reserve Bank for admission to the SWIFT User's Group in India |
| (5) | Sole proprietorships and unregistered partnership firms | May invest overseas by the proprietor or the individual partners within their LRS limit, in accordance with Schedule III of the OI Rules. For a strategic sector, an application for investment above the LRS limit may be made under the Government approval route |
| (6) | Registered trusts and societies | Overseas investment under the approval route in accordance with paragraph 1 of Schedule IV of the OI Rules |
Paragraph 24: overseas investment in an IFSC in India
A person resident in India may make overseas investment in an IFSC in India in accordance with Schedule V of the OI Rules. The Master Direction adds:
- (1) An Indian entity or a resident individual may invest (including sponsor contribution) in units or other instruments issued by an investment fund or vehicle set up in an IFSC, as OPI. In addition to listed Indian companies and resident individuals, unlisted Indian entities may also make such investment in an IFSC.
- (2) The restriction of making ODI only in an operating foreign entity, or not making ODI in a foreign entity engaged in financial services activity by resident individuals, does not apply to an investment in an IFSC. The investment shall not be made in any foreign entity engaged in banking or insurance. The foreign entity in the IFSC may have a subsidiary or step down subsidiary in the IFSC, and outside the IFSC where the resident individual does not have control in it. A resident individual who has made ODI without control shall not acquire control in a foreign entity that subsequently acquires or sets up a subsidiary outside India.
Paragraph 21(7) of the Master Direction (the financial services table) is read in the article on paragraph 21.
Paragraph 25: immovable property outside India
Any acquisition or transfer of immovable property outside India is governed by rule 21 of the OI Rules (not in the sources consulted). Paragraph 25(1) adds that an AD bank may allow an Indian entity having an overseas office to acquire immovable property outside India for the business and residential purposes of its staff, provided total remittances do not exceed the limits laid down for initial and recurring expenses, respectively:
| Expense | Limit as printed |
|---|---|
| Initial expenses | 15 per cent of the average annual sales, income or turnover of the Indian entity during the last two financial years, or up to 25 per cent of the net worth, whichever is higher |
| Recurring expenses | 10 per cent of the average annual sales, income or turnover during the last two financial years |
For the individual's side, see the Liberalised Remittance Scheme article.
Example
Arya Textiles Ltd has an overseas office and wants to buy a flat abroad for its staff. Its average turnover over the last two financial years is ₹200 crore and its net worth is ₹30 crore. For initial expenses, 15 per cent of ₹200 crore is ₹30 crore, and 25 per cent of ₹30 crore is ₹7.5 crore; whichever is higher is ₹30 crore. For recurring expenses, 10 per cent of ₹200 crore is ₹20 crore. The figures are an illustration of the arithmetic printed in paragraph 25(1) and are subject to rule 21 of the OI Rules. A resident individual who wants to invest in a fund set up in an IFSC treats it as OPI under paragraph 24(1); an unlisted Indian company can do the same.
Common mistakes
- Overlooking that an Indian entity needs an overseas office to use paragraph 25(1).
- Treating fund units in an IFSC as ODI. Paragraph 24(1) calls them OPI.
- Adding a layer of subsidiaries to an existing two-layer structure; paragraph 20(2) bars it.
- Forgetting that a proprietorship invests within the proprietor's LRS limit, not a corporate limit.
Need help with an IFSC or fund investment?
The right route depends on who invests, the instrument and the host regime. Our ODI reporting team can classify the investment and prepare the filings.
Key takeaways
- Banks cannot facilitate transactions with prohibited-activity foreign entities or advised jurisdictions.
- More than two layers of subsidiaries is not permitted for a foreign entity that invests into India.
- Mutual funds are capped at USD 7 billion and VCFs/AIFs at USD 1.5 billion overseas.
- IFSC fund units are OPI; banking and insurance entities are excluded.
- Immovable property abroad for an Indian entity with an overseas office has initial and recurring limits.
Read next
- Overseas investment by resident individuals: paragraph 22
- Designated AD bank, UIN and online reporting: paragraphs 15 and 26 to 28
- ODI round tripping restrictions
- Setting up a subsidiary abroad: Indian company guide
Disclaimer: Based on the rules, regulations and Reserve Bank Master Directions under the Foreign Exchange Management Act, 1999 that this article names, each in the version and up to the date stated in the article, as consulted on 2 October 2026. Some texts are third-party copies or older prints and are identified as such. Limits, forms and time limits change by amendment and circular; later changes should be checked on the Reserve Bank and Gazette sites. This article is general information, not legal advice; check the official text before acting.