Convertible notes for foreign investors in Indian startups
A foreign investor can fund an Indian startup through a convertible note: an instrument a start-up company issues as debt, convertible into equity shares or repayable at the holder’s option within ten years of issue. The rules sit in the RBI Master Direction on Foreign Investment in India, updated to 15 June 2026. The floor is INR 25 lakh per tranche, investors from Pakistan or Bangladesh are excluded, land-border investors need Government approval, and the company files Form CN within 30 days. Articles quoting five years are out of date.
Four instruments, six dimensions
Four instruments compete for a cross-border seed cheque: the Indian convertible note, the CCD or CCPS, the Y Combinator SAFE and the iSAFE. Whether a SAFE can take foreign money into an Indian company is already answered on SAFE vs CCD vs priced round; this page adds the convertible note, the one instrument that is debt on day one.
| Dimension | Indian convertible note | CCD or CCPS | Y Combinator SAFE | iSAFE |
|---|---|---|---|---|
| Legal basis | Debt at issue, convertible into equity shares or repayable at the holder’s option (RBI Master Direction paras 2.5 and 6.14); permitted since 10 January 2017 | Equity under FEMA because fully, compulsorily and mandatorily convertible (para 4.1); otherwise debt outside the NDI Rules (para 4.6.2) | A contract for future shares in a US company: not debt, no interest, no maturity date; YC form since 2013, post-money standard since 2018 | Compulsorily convertible preference shares under Indian law; 100X.VC states it pioneered the form for India in July 2019 |
| Who can issue | A start-up company; in a Government-approval sector, only with that approval (para 6.14.2) | An Indian Private Limited company; an LLP cannot | A US company; YC recommends a lawyer licensed where the company was formed before use elsewhere | An Indian company that can issue CCPS |
| Who can invest | Any non-resident except a citizen of, or entity incorporated in, Pakistan or Bangladesh (para 6.14.1); land-border investors and beneficial owners, Government route only (para 3.2); NRIs and OCIs on a non-repatriation basis (para 6.14.5) | Foreign or domestic investors, on the sector’s entry route and cap | Investors into the US company; see the SAFE verdict linked above for Indian companies | Investors into the Indian company; a foreign holder follows the FDI pricing and reporting rules for CCPS |
| Size limits | INR 25 lakh or more per tranche from a non-resident (para 6.14.1); no ceiling stated; sectoral caps on conversion (para 6.14.3) | None in the instrument; sectoral caps on conversion | None in the form | None in the form |
| Conversion deadline | Converted or repaid within ten years from issue, at the holder’s option (para 6.14.8) | Price or conversion formula fixed upfront (para 8.1.2); timing as the instrument states | On a preferred stock financing; acquisition or IPO is a Liquidity Event, shutdown a Dissolution Event; no time trigger | Next priced round, dissolution, merger or acquisition, or three years from issue, whichever is earlier |
| Filing | Form CN within 30 days of issue or of a transfer to or from a non-resident; FC-GPR within 30 days on conversion | FC-GPR within 30 days of allotment to a non-resident; FC-TRS within 60 days on a resident to non-resident transfer; FLA by 15 July | No Indian filing while it sits at the US company | For a foreign holder, the CCPS filings: valuation, FC-GPR within 30 days, FLA annually |
Sources: RBI Master Direction id=11200 (updated to 15 June 2026); FEMA 395/2019-RB (amended to 13 June 2026); Y Combinator’s SAFE documents; 100X.VC’s iSAFE page. All as at 25 September 2026.
Ten years, not five
The most repeated error on this topic is the tenure. The Master Direction, as updated up to 15 June 2026, defines the note in para 2.5 as convertible into equity shares of the start-up company within a period not exceeding ten years from issue, and para 6.14.8 repeats it: converted or repaid within ten years at the holder’s option. Any source still quoting five years does not match the current text. Write the outer date into the note itself; the instrument is what the investor and the AD bank read at year eight.
The holder’s option separates the note from a CCD. A CCD must convert, so FEMA treats it as equity; a note may be repaid, so it is debt until it converts. On conversion, para 6.14.3 requires the shares to issue in compliance with the entry route, sectoral caps and pricing guidelines: the note defers FDI pricing, it does not sidestep it.
Who can issue one, and what DPIIT recognition tests
The Master Direction reserves the convertible note to a start-up company. DPIIT recognition is the government’s startup recognition framework, and the official Startup India page, citing G.S.R. 108(E), sets the criteria: a Private Limited Company, Partnership Firm, Limited Liability Partnership or Cooperative Society; within ten years of incorporation (twenty for DeepTech); turnover below INR 200 crore (INR 300 crore for DeepTech) in any of the previous financial years; working towards innovation or improvement of products, services or processes with potential to generate employment or create wealth; and not formed by splitting up or reconstructing an existing business. Only a company that can issue equity shares can issue the note, which in practice means the Private Limited company.
Two more gates apply. In a sector requiring Government approval for foreign investment, para 6.14.2 allows the note to issue to a non-resident only with that approval, the same automatic versus approval route logic as an equity raise. And an investor from a country sharing a land border with India, or an investment whose beneficial owner sits in or is a citizen of one, invests only under the Government route (para 3.2), so the beneficial-ownership record on the FEMA FDI checklist is built before the term sheet.
Payment, Form CN and the exit
Consideration comes in by inward remittance through banking channels or by debit to a repatriable foreign currency or Rupee account. An escrow, if used, closes once the requirements are completed or at six months, whichever is earlier. The start-up company files Form CN within 30 days of issue; the resident party to a transfer to or from a non-resident files Form CN within 30 days of the transfer. On conversion, FC-GPR is filed within thirty days of the issue of equity shares, a later resident to non-resident transfer of those shares is FC-TRS within sixty days, and the FLA return falls due on 15 July, on the India compliance calendar.
At the exit, repayment or sale proceeds may be remitted outside India. An NRI or OCI who acquired the note on a non-repatriation basis under para 6.4 holds it on that basis. A non-resident may also sell the note to a resident or another non-resident, on the entry routes and pricing guidelines.
iSAFE and SAFE share a menu, not a legal form
YC publishes three post-money SAFE forms (valuation cap, discount, uncapped MFN) with an optional pro rata side letter, and says plainly that the forms are for US companies. The iSAFE borrows the menu, with variants for a cap with discount, a cap, a discount or MFN terms, and adds a time trigger the SAFE lacks: conversion at three years from issue if no liquidity event has come first.
For a foreign investor, the iSAFE’s Indian legal form matters most. As compulsorily convertible preference shares it is an equity instrument under FEMA, priced at issue against a valuation certified by a Chartered Accountant, a SEBI-registered Merchant Banker or a practising Cost Accountant, the conversion formula fixed upfront and FC-GPR filed within thirty days: for FEMA, an iSAFE holder holds CCPS. The fundraising instrument cheat sheet puts it in one line: the receiving entity decides the instrument.
A SAFE at the Delaware parent, downstream to the Indian subsidiary
Corridor companies with a Delaware parent and an Indian operating subsidiary often raise on a SAFE at the parent and send the money down. Each of its two legs sits on its own law: the SAFE leg is a US contract at a US company. The downstream leg is foreign investment into the Indian subsidiary in equity instruments priced at or above a certified valuation, the conversion formula fixed upfront for any convertible, and FC-GPR filed within thirty days of allotment. A convertible note is available downstream only if the subsidiary is a start-up company and the parent’s cheque meets the INR 25 lakh tranche floor.
Where Indian-resident founders hold the parent, their own position engages India’s overseas investment framework and the round-tripping rules; the Delaware flip from India and the two-layer rule on round-tripping set that out. Earlier foreign money left a FEMA trail of pricing, FC-GPR and FLA, and a flip during a live raise lets the investor’s counsel turn each gap into a closing condition, so the record is cleaned first. Model every instrument’s conversion at the next priced round against the ESOP pool. Whether the route suits a company is a question on its facts, worked through the Delaware flip service.
On who signs what: Infinilex counsel qualified in India, an advocate enrolled in India, sign the India leg: the instrument, the board and shareholder papers and the FEMA review; Infinilex counsel qualified in the US, a US-admitted lawyer, sign the SAFE leg at the Delaware parent. Statutory signatories stay as the statute names them: the company or its directors file Form CN and FC-GPR through the AD bank, and a Chartered Accountant, a SEBI-registered Merchant Banker or a practising Cost Accountant certifies the valuation. The fundraising legal advisory service runs the round on that model.
Which investor can hold the note
| Investor | Convertible note available? | Conditions and filing |
|---|---|---|
| Non-resident from a non-land-border country (US, UAE, EU, Singapore) | Yes, on a repatriation basis | INR 25 lakh or more per tranche; sector approval where required; beneficial-owner test; Form CN within 30 days; FC-GPR on conversion |
| NRI or OCI | Yes, on a non-repatriation basis (para 6.14.5) | Para 6.4 route; Form CN within 30 days of issue |
| Land-border country entity, or beneficial owner in or a citizen of one | Government route only | Para 3.2 applies first; approval precedes issue |
| Citizen of, or entity incorporated in, Pakistan or Bangladesh | No | Excluded by para 6.14.1 |
| Resident Indian investor | Outside FEMA on issue | Transfers to or from a non-resident go in Form CN within 30 days; the Companies Act position is outside this piece |
Frequently asked questions
Is the convertible note tenure in India 5 years or 10 years?
Ten years. The RBI Master Direction on Foreign Investment in India, in the text updated to 15 June 2026, defines a convertible note as convertible into equity shares of the start-up company, or repayable at the holder's option, within a period not exceeding ten years from the date of issue, and repeats ten years in the paragraph on conversion and repayment. Articles that still quote five years do not match the current text.
What is the minimum amount a foreign investor can put into a convertible note of a DPIIT recognised startup?
Twenty-five lakh rupees or more in a single tranche. The Master Direction permits a person resident outside India, other than a citizen of or an entity incorporated in Pakistan or Bangladesh, to invest in convertible notes issued by an Indian startup company at that floor per tranche. It is a regulatory threshold, not a fee. A smaller foreign cheque tops up to the floor or goes in as a compulsorily convertible instrument priced under the FDI pricing rules.
What is the difference between an iSAFE and a SAFE?
Legal form. A Y Combinator SAFE is a contract for future shares in a US company: not debt, no interest, no maturity date, converting when the company sells preferred stock in a priced round. The iSAFE, which 100X.VC states it pioneered for India in July 2019, is issued as compulsorily convertible preference shares under Indian law, so it is equity from day one, and it converts on a priced round, dissolution, merger or acquisition, or at three years from issue, whichever is earlier.
Can a SAFE be signed at a Delaware parent and the money sent down to the Indian subsidiary?
It is a route many corridor companies use, and each leg has its own rules. The SAFE sits at the US parent under US law on the YC form. The money then enters the Indian subsidiary as foreign investment in equity instruments priced at or above a certified valuation, with FC-GPR filed within thirty days of allotment. If Indian-resident founders hold the parent, the overseas investment framework and the round-tripping rules apply to them too.
Can a UAE investor in ADGM or DIFC subscribe to a convertible note of an Indian startup?
Yes, subject to two checks. The UAE does not share a land border with India and is not Pakistan or Bangladesh, so an ADGM, DIFC or mainland UAE entity, or a UAE-resident individual, can subscribe at the INR 25 lakh single-tranche floor. If the startup's sector needs Government approval for foreign investment, the note issues only with that approval. And if the UAE vehicle's beneficial owner sits in, or is a citizen of, a land-border country, the investment is Government route only.
Taking a foreign cheque into an Indian startup?
Tell us who the investor is, where the money comes from and whether a Delaware parent is in the picture. We will map the instrument, the pricing point, the filing windows and the founders’ own FEMA position before the term sheet goes out.
Further reading
SAFE vs CCD vs priced round · The fundraising instrument cheat sheet · The Delaware flip from India · FDI automatic vs approval route · The FEMA FDI compliance checklist · Round-tripping and the two-layer rule · Cross-border M&A advisory
General information, not legal advice on your own round. Every position above is stated as at 25 September 2026 from the primary sources linked in Schedule A; confirm the current text for your facts before you sign.