Schedule VIII 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.
Schedule VIII to the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 governs how a person resident outside India may hold units of an "investment vehicle" such as a Real Estate Investment Trust (REIT), an Infrastructure Investment Trust (InvIT) or an Alternative Investment Fund (AIF). Its most practical rule is the control test in paragraph (4): whether the vehicle's own investment in an Indian company counts as foreign or domestic depends on who owns and controls the sponsor and the manager. This article reads rule 6(c), Schedule VIII and the two definitions it depends on, rule 2(ae) and rule 2(aq).
This article states the position as per the Rules 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. Schedule VIII and rule 6(c) stand as notified. Two definitions were amended: rule 2(ae) by S.O. 4355(E) of 5 December 2019, and rule 2(aq) by S.O. 1361(E) of 14 March 2024. (The Note to S.O. 1361(E) lists the April 2022 amendment as S.O. 1202(E); the amending notification's own heading prints S.O. 1802(E).) The Rules rest on section 46 of the Act; see our article on section 46 of the Foreign Exchange Management Act, 1999. Amendments after 2 September 2026 should be checked in the Gazette. For a fund or trust structured for foreign unit-holders, our FEMA advisory service can review the position.
A person resident outside India (other than a citizen of Pakistan or Bangladesh, or an entity incorporated there) may invest in units of investment vehicles (rule 6(c), Schedule VIII). Since S.O. 4355(E), "investment vehicle" covers REITs, InvITs and AIFs; mutual funds were taken out of the list. A vehicle's investment in an Indian entity counts as indirect foreign investment if its sponsor, manager or investment manager is not owned and controlled by resident Indian citizens, or is owned or controlled by non-residents. A Category III AIF with foreign investment may make portfolio investment only in what an FPI may buy. A "unit" now includes a partly paid unit where SEBI permits.
The definitions that matter
| Definition | As amended |
|---|---|
| Rule 2(ae): "investment vehicle" | An entity registered and regulated under regulations framed by SEBI or any other authority designated for that purpose, including (i) REITs under the SEBI (REITs) Regulations, 2014, (ii) InvITs under the SEBI (InvITs) Regulations, 2014, and (iii) AIFs under the SEBI (AIFs) Regulations, 2012. Item (iv), "mutual funds which invest more than fifty percent in equity" under the SEBI (Mutual Funds) Regulations, 1996, was omitted by S.O. 4355(E), deemed in force from 17 October 2019 |
| Rule 2(aq): "unit" | A beneficial interest of an investor in an investment vehicle. S.O. 1361(E) added an Explanation: for the purposes of the clause, unit shall include a unit that has been partly paid up, which is permitted under the regulations framed by SEBI, in consultation with the Government of India |
The regulations named inside rule 2(ae) are quoted as printed; check the current SEBI instruments. After the omission of item (iv) the list reads (i), (ii), (iii) with no word "and" before the last item; the meaning is not affected. The definitions are explained in our article on equity instruments, convertible notes and units.
Rule 6(c): who may invest
Rule 6(c) says a person resident outside India, other than a citizen of Bangladesh or Pakistan or an entity incorporated in Bangladesh or Pakistan, may invest in units of an investment vehicle in the manner and subject to the terms and conditions in Schedule VIII. Rule 6(a), the land-border provisions, is explained in our article on who may invest and land border countries.
Schedule VIII paragraph by paragraph
Paragraph (1): investing in units
A person resident outside India (other than a citizen of Pakistan or Bangladesh) or an entity incorporated outside India (other than an entity incorporated in Pakistan or Bangladesh) may invest in units of investment vehicles.
Paragraph (2): sale, transfer and redemption
A person resident outside India who has acquired or purchased units in accordance with the Schedule may sell or transfer in any manner or redeem the units as per regulations framed by the Securities and Exchange Board of India or directions issued by the Reserve Bank.
Paragraph (3): units against a swap
An investment vehicle may issue its units to a person resident outside India against a swap of equity instruments of a Special Purpose Vehicle (SPV) proposed to be acquired by the vehicle. For swaps and their pricing see our article on swap of equity instruments and equity capital.
Paragraph (4): the sponsor and manager test
Investment made by an investment vehicle into an Indian entity is reckoned as indirect foreign investment for the investee Indian entity if the sponsor, manager or investment manager:
- (i) is not owned and not controlled by resident Indian citizens; or
- (ii) is owned or controlled by persons resident outside India.
A proviso says that where the sponsor, manager or investment manager is organised in a form other than a company or an LLP, SEBI shall determine whether it is foreign owned and controlled.
The Explanation adds that "control" of the AIF should be in the hands of sponsors and managers or investment managers, "with the general exclusion to others". Where the sponsors and managers or investment managers of the AIF are individuals, they should be resident Indian citizens for the AIF's downstream investment to be treated as domestic.
The same test appears in rule 23, whose clause (i) of the Explanation defines "indirect foreign investment" to include downstream investment received from an investment vehicle whose sponsor or manager or investment manager is not owned and not controlled by resident Indian citizens or is owned or controlled by persons resident outside India. Rule 23 is explained in our article on indirect foreign investment and ownership tests.
Paragraph (5): Category III AIFs
An Alternative Investment Fund Category III which has received any foreign investment shall make portfolio investment only in those securities or instruments in which an FPI is allowed to invest under the Act or rules or regulations made under it. FPI permissions are in Schedule II; see our articles on individual and aggregate limits and on public offers, short selling and fund units.
Paragraph (6): mode of payment
The mode of payment and other attendant conditions for remittance of sale or maturity proceeds shall be specified by the Reserve Bank.
The Reserve Bank's statements
The Master Direction - Foreign Investment in India, updated up to June 15, 2026, restates Schedule VIII in Annex 7. It adds, as its own statements, that foreign investment in units of investment vehicles is permitted "with effect from November 13, 2016", and that the consideration is paid as inward remittance through banking channels, by swap of SPV shares, or out of a repatriable foreign currency or Rupee account maintained under the Foreign Exchange Management (Deposit) Regulations, 2016, with sale or maturity proceeds (net of taxes) remitted outside India or credited to such an account. The matching row of the Mode of Payment and Reporting Regulations for Schedule VIII is named here; see our article on payments for NRIs, LLPs, FVCIs, investment vehicles and convertible notes. For the tax treatment of fund distributions, see our income-tax guides.
A worked example
Larkin Infrastructure Trust is registered as an InvIT. A foreign investor, Odell Capital Partners, subscribes to its units. Larkin then invests in Marlowe Roads Limited, an Indian company. If Larkin's sponsor and manager are owned and controlled by resident Indian citizens, the investment does not count as indirect foreign investment for Marlowe Roads under paragraph (4). If the manager is owned or controlled by non-residents, it does. Separately, if a Category III fund with foreign money wants to hold securities that an FPI may not hold, paragraph (5) stops it. All names are invented.
Need help with investment vehicles and foreign unit-holders?
The control test in paragraph (4) is where fund structures are most often challenged, because the answer changes how every downstream investment is counted. Our FEMA advisory team can map the sponsor and manager ownership against the test before units are offered to foreign investors.
Key takeaways
- Foreign persons (other than citizens or entities of Pakistan and Bangladesh) may invest in units of REITs, InvITs and AIFs.
- Mutual funds were removed from the "investment vehicle" definition by S.O. 4355(E).
- Partly paid units are "units" where SEBI regulations permit (S.O. 1361(E)).
- Indirect foreign investment turns on ownership and control of the sponsor, manager or investment manager.
- A Category III AIF with foreign investment is limited to FPI-eligible securities.
Read next
- Investment in a limited liability partnership: Schedule VI
- Depository receipts and IDRs: Schedules IX and X
- Sovereign funds and venture capital investors: Schedules V and VII
- FPI foreign portfolio investment in India
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.