--- title: "Can a US VC Fund Open a Demat Account in India? FDI vs FPI Explained" description: "FDI vs FPI explained for US funds: which route covers Indian startups, how FPI registration works, the 10% rule and how to open a demat account." canonical: "https://www.accounti.ai/resources/blog/fdi-vs-fpi" author: "Rohit Kapoor" date: "2026-10-24T08:56:59+00:00" category: "India Demat Pro" image: "https://storage.zerply.ai/teams/319/blogs/487/15a013f5e2d670c9-1792758213840-accounti-blog-hero-fdi-vs-fpi-us-vc-fund-demat-2026-10-23-1600w.webp" --- # Can a US VC Fund Open a Demat Account in India? FDI vs FPI Explained **Quick Answer:** > A US VC fund investing in an Indian startup uses the FDI route. It needs an Indian tax ID (PAN), apostilled fund documents and a demat account with a depository participant, and it does not need to register with the Securities and Exchange Board of India (SEBI). SEBI registration as an FPI matters only for trading listed Indian shares. Registration as a Foreign Venture Capital Investor (FVCI) is optional and suits funds with a steady India pipeline. A US venture capital (VC) fund can open a demat account in India, and the route it uses depends on what the fund buys. Equity in an Indian startup counts as foreign direct investment (FDI). Shares of a listed company held below 10% count as foreign portfolio investment (FPI). The FDI vs FPI split decides which registrations, accounts and filings your finance team prepares before money moves. A demat (dematerialized) account holds shares in electronic form, much like a US brokerage account holds securities. For a venture fund, it is no longer optional. Under Rule 9B of India's Companies (Prospectus and Allotment of Securities) Rules, private companies other than small companies must issue shares in demat form, and the compliance deadline for most of them ran out on June 30, 2025. Accounti's [India Demat Pro](https://www.accounti.ai/india-demat-pro/) team sets up these accounts for foreign funds and has opened more than 200 of them for investors in 11-plus countries. This guide walks fund CFOs and heads of finance through the sequence. ![FDI vs FPI vs FVCI routes for a US venture fund investing in India, comparing what each route buys, whether SEBI registration is needed and how the demat account is opened](https://storage.zerply.ai/teams/319/blogs/487/5077b349a4a0cf81-1792751634232-accounti-fdi-fpi-fvci-routes-2026-10-23-2000w.webp) ## Can a foreign fund invest in Indian startups? Yes. India's Consolidated FDI Policy defines FDI as [investment by a person resident outside India in an unlisted Indian company, or in 10% or more of a listed company's post-issue paid-up equity](https://www.mofpi.gov.in/sites/default/files/fdi-policycircular-2020-28october2020.pdf). The 2020 circular is still the latest consolidated version, read together with later press notes. Startups are almost always unlisted, so a US fund buying their shares makes an FDI investment whatever the check size. The automatic route covers the large majority of sectors, which means no prior government approval is needed. A few sectors carry ownership caps or need approval first. Approval is also required when the fund's beneficial owners are in a country that shares a land border with India, under Press Note 3 of 2020. Check both points before signing the term sheet. Two rules under India's Foreign Exchange Management Act (FEMA) shape the deal itself: | Rule | What it requires | | --------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | | Pricing | New shares in an unlisted company cannot be issued below fair value, as certified by a chartered accountant, a SEBI-registered merchant banker or a practicing cost accountant | | Reporting | The startup reports the allotment to the Reserve Bank of India (RBI) on Form FC-GPR within 30 days | The FPI route does not cover unlisted equity, since it was designed for investors who trade listed securities. A fund writing a Series A check therefore never needs FPI status. **What this means for the fund:** a startup investment is an FDI deal from the first dollar. The fund's work is KYC (know your customer) paperwork and support for the company's RBI filing, and SEBI registration does not come into it. ## FDI vs FPI at a glance The table below compares the two routes on the points a fund finance team has to plan for. | Point | FDI | FPI | | -------------------- | -------------------------------------------------------------------------------- | -------------------------------------------------------------- | | What it buys | Equity of unlisted companies, or 10% or more of a listed company | Listed securities, below 10% of a single company | | SEBI registration | Not required | Required, granted by a designated depository participant (DDP) | | PAN | Applied for separately on Form 96 | Allotted through the FPI application form | | Demat account | Opened with a depository participant after KYC | Opened through the custodian after registration | | Reporting to the RBI | Startup files FC-GPR for new shares; the Indian party files FC-TRS for transfers | Custodian reports the FPI's trades | | Typical holder | Venture and growth funds, angel investors | Hedge funds, mutual funds, pension funds | The 10% line only matters for listed companies. An unlisted startup has no portfolio threshold to stay under, because every foreign equity holding in it is FDI from the first share. ## Opening a demat account under FDI The steps below show how this work usually runs for a fund investing in a private Indian company. [Accounti's guide to opening a demat account as a foreign investor](https://www.accounti.ai/hub/blog/blogdemat-account-foreign-entities-india-guide) covers each document in more detail. 1. **Confirm the route and the instrument.** Check the startup's sector against the automatic route and screen the fund's owners for land-border links. Then confirm the instrument, such as equity shares, compulsorily convertible preference shares or a convertible note. 2. **Apply for a Permanent Account Number (PAN).** PAN is India's tax ID. Since April 1, 2026, foreign entities apply on Form 96 under the Income-tax Act, 2025. Every Indian intermediary asks for it before onboarding the fund. 3. **Apostille the fund documents.** The certificate of formation, partnership agreement, authorized signatory list and beneficial owner details usually need notarization and an apostille. An apostille is the international certification that makes a US document valid in India. 4. **Complete KYC with a depository participant (DP).** The DP is the bank or broker that opens and services the demat account. It reviews the documents and the fund's beneficial owners before activating the account. 5. **Send the investment through the banking system.** The money moves from the fund's bank to the startup's Indian account. Keep the remittance advice, because the startup needs it for its RBI filing. 6. **Receive the shares in demat form.** The startup allots the shares to the fund's demat account using the ISIN (International Securities Identification Number) issued for its shares, then files FC-GPR. ![Six steps for a US VC fund to open a demat account in India under the FDI route, from confirming the route to receiving shares, with who handles each step](https://storage.zerply.ai/teams/319/blogs/487/0316a65c28e6bf24-1792757109395-accounti-fdi-demat-account-steps-2026-10-23-2000w.webp) Start steps two and three alongside legal diligence, since PAN and apostille delays are the usual reason a closing date slips. AngelList, whose fund administrator works with Accounti on demat setup, [estimates 12 to 16 weeks for the full process](https://help.angellist.com/hc/en-us/articles/36489549082637-Demat-account-requirements-for-investments-into-Indian-portfolio-companies). It also notes that each fund vehicle needs its own account, including SPVs and rolling funds. **What this means for the fund:** treat the demat account as a closing item and open one per vehicle. An SPV cannot use the main fund's account. ## FPI registration for listed shares A fund that wants to trade listed Indian equities registers with SEBI as an FPI. The application goes to a DDP, which reviews eligibility and grants the registration certificate on SEBI's behalf. Applicants file one Common Application Form (CAF) on the NSDL or CDSL portal. [CDSL explains](https://www.cdslindia.com/CAF/CAF.html) that once the DDP approves it, the fund receives its registration certificate and the Income Tax Department generates its PAN. SEBI sorts applicants into two categories, and the category sets how much KYC documentation the fund provides. | Category | Who qualifies | Where a US VC fund lands | | ----------- | --------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------- | | Category I | Government-related investors, regulated entities such as banks, insurers and asset managers, and appropriately regulated funds from FATF member countries | Possible when the fund is regulated, or when its regulated investment manager is itself a Category I FPI | | Category II | Everyone else, including unregulated funds, family offices and corporate bodies | Typical for an unregulated fund without that link, with fuller beneficial owner checks | Two more conditions apply. Non-resident Indians (NRIs), overseas citizens of India (OCIs) and resident Indians can contribute to an FPI [only below 25% each and 50% combined](https://www.grantthornton.in/link/5a3ec95a089b40c9a4771a5ebbf806c5.aspx), and none of them can control it. Funds based in India's International Financial Services Centres have relaxed limits. The fund also appoints a custodian bank, and its Indian bank and demat accounts are opened after registration, so the demat account cannot come first. **What this means for the fund:** FPI registration pays off only with a real listed-market mandate. For a fund that invests in startups alone, it adds cost and reporting without any benefit. ## What happens when an FPI crosses 10% An FPI whose holding, together with its investor group, reaches 10% or more of a listed company's fully diluted equity has [five trading days from the settlement date to bring it back under the limit](https://nsearchives.nseindia.com/web/sites/default/files/inline-files/FPI%20FAQs_Brochure.pdf). Since November 2024, an RBI framework also lets it [reclassify the stake as FDI](https://www.ey.com/en_in/technical/alerts-hub/2024/12/introduction-of-framework-for-reclassification-of-fpi-to-fdi) instead. | Option | What the FPI does | Result | | ---------- | ---------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------- | | Divest | Sells the excess within five trading days of settlement | The holding stays on the FPI route | | Reclassify | Gets the company's consent and any government approval the sector needs, files with the RBI and moves the shares to an FDI demat account | The holding becomes FDI and stays FDI even if it later falls below 10% | Reclassification is not available in sectors where FDI is prohibited. If the FPI neither divests nor reclassifies, the whole holding is treated as FDI and the FPI cannot buy more of that company's shares under the portfolio route. ## Where the FVCI route fits FVCI registration is a third option. It is a SEBI registration that lets a foreign venture fund invest under a dedicated schedule of India's foreign exchange rules, and [startups in any sector can issue equity, equity-linked instruments or debt to an FVCI](https://www.mofpi.gov.in/sites/default/files/fdi-policycircular-2020-28october2020.pdf). The rules changed recently, so older guides often get them wrong. | Point | Current position | | ----------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | | Who grants registration | A DDP, on SEBI's behalf, for applications made since [January 1, 2025](https://trilegal.com/knowledge-repository/trilegal-update-sebi-streamlines-regulation-of-foreign-venture-capital-investors/) | | Investment condition | At least 66.67% of investible funds in unlisted equity or equity-linked instruments, under [SEBI's FVCI regulations](https://www.sebi.gov.in/acts/fvcregu.html) | | Fee | US$2,500 plus GST, which a [July 2026 SEBI notification](https://www.corplawupdates.in/updates/sebi-fvci-amendment-regulations-2026-usd-inr-fees) converts to ₹2.3 lakh from December 30, 2026 | | Renewal | Every five years, for a small renewal fee | FVCI suits a fund that writes many Indian startup checks, or one that wants the wider choice of instruments the registration allows. A fund making one or two investments can usually stay on the plain FDI route and skip SEBI registration entirely. ## How to pick the right route Start with the fund's mandate. The table below maps common mandates to a route and to what the finance team sets up. | Fund mandate | Route | What to set up | | --------------------------------------------- | ---------------------------------------- | ---------------------------------------------------- | | A few private Indian startup deals | FDI | PAN, apostilled documents, a demat account with a DP | | A steady startup pipeline or debt instruments | FDI, with FVCI registration added | DDP, custodian, FVCI certificate | | Listed Indian shares below 10% | FPI | DDP registration, custodian, bank and demat accounts | | A listed stake that may reach 10% | FPI, with a plan to divest or reclassify | Monitoring of the investor group's combined holding | Then check the exceptions. The startup's sector, any land-border ownership in the fund and the type of instrument each change the paperwork more than the fund's size does. ## Next steps for fund finance teams The route a fund chooses sets the account structure, the filings and the audit trail it will carry in India for years. [Accounti](https://www.accounti.ai/) runs this work for foreign funds through India Demat Pro, a fully managed service that covers the PAN, apostilled documents, demat account, share transfers and the tax filings at exit. Its clients include VersionOne, FJ Labs, AngelList and Gaingels. Funds that want the finances of their wider portfolio run as one operation can add [Global Portfolio Operations](https://www.accounti.ai/global-portfolio-operations/). [Book a call](https://www.accounti.ai/contact-us/) with Accounti before your next India closing, so the demat account is ready before the shares are allotted. This article is general information, so have Indian counsel confirm the position for your fund's structure. ## Frequently asked questions ### Can a US VC fund hold Indian startup shares through the FPI route? No. The FPI route covers listed securities only. Equity in an unlisted Indian startup is FDI, so a US venture fund invests under the FDI route and does not need SEBI registration. ### Does a foreign fund need SEBI registration to invest in an Indian startup? Not for plain FDI. SEBI registration applies to FPIs and FVCIs. A fund can invest in most sectors under the automatic route without either, though sector caps and land-border ownership rules can require government approval. ### Does an FDI investor need a demat account in India? Yes, in practice. Rule 9B requires most private Indian companies to issue shares in demat form, so the fund needs a demat account with a depository participant. It needs an Indian PAN on Form 96 and apostilled fund documents first, and each fund vehicle, including SPVs, needs its own account. ### How long does it take a US fund to open a demat account in India? Plan for a few months. AngelList estimates 12 to 16 weeks end to end, and PAN applications and apostilled documents are the usual cause of delay, so start them at term sheet stage. ### What does the 10% threshold in FDI vs FPI mean? It applies to listed companies. A holding of 10% or more of a listed company's fully diluted equity is FDI, while a holding below 10% is FPI. An FPI that crosses the line has five trading days to divest or reclassify the stake as FDI. Unlisted company equity is always FDI. ```json {"@context":"https://schema.org","@type":"Article","headline":"Can a US VC Fund Open a Demat Account in India? 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