Convertible Note / SAFE Guide
Convertible
Instruments Guide
SAFE, CCD, CCPS, convertible note — and what each one actually means under FEMA. The instrument you pick determines your RBI compliance burden for years.
Filter by your situation
Investor is
Round stage
DPIIT recognised?
FEMA treatment quick reference
Equity (FDI)
CCPS, CCD
FC-GPR, FLA Return, pricing guidelines
Special permit
Convertible Note
Form CN within 30 days, DPIIT mandatory
Ambiguous
SAFE (foreign)
No RBI framework — avoid for foreign investors
Debt (ECB)
OCD / OCPS
LRN, ECB-2 monthly returns, end-use limits
FEMA regulations change. This guide reflects FEMA 20(R)/2017, RBI Master Directions on External Commercial Borrowings, and SEBI AIF Regulations. Always confirm with a FEMA practitioner before issuing instruments to foreign investors — wrong instrument choice creates compounding liability.
Common questions
Convertible instruments, statute-cited.
What are the main convertible instruments for Indian startups?+
The three workhorses are Compulsorily Convertible Preference Shares (CCPS) and Compulsorily Convertible Debentures (CCD) under the Companies Act 2013, and convertible notes issued under the Startup India framework — a special permit for DPIIT-recognised startups under s.62 of the Companies Act 2013 read with the Companies (Share Capital and Debentures) Rules 2014. The guide compares their conversion terms, pricing, and filing obligations.
How does a convertible note convert?+
A convertible note is a loan that converts to equity at the next priced round — at a discount (typically 15–20%) and/or a valuation cap — or on maturity, with interest accrued and paid in shares. The conversion price is fixed at issuance or determined by a formula at conversion; the note is issued at a valuation agreed by the investor and company.
What are the filing requirements for a CCD or CCPS round?+
The company files Form PAS-3 (return of allotment) with the ROC within 15 days of allotment under s.39 of the Companies Act 2013 read with Rule 12 of the Companies (Share Capital and Debentures) Rules 2014, plus the relevant board resolutions (Form MGT-14 where applicable). Convertible notes also carry an RBI reporting requirement — Form CN filed with the RBI via the FIRMS portal within 30 days of receipt of funds, under the FEMA (Non-debt Instruments) Rules 2019.
What is Form CN and why is it often missed?+
Form CN is the RBI reporting for convertible notes issued to a non-resident investor, filed within 30 days of receipt of funds under the FEMA (Non-debt Instruments) Rules 2019. It is frequently missed — which triggers compounding proceedings for a FEMA reporting contravention under s.13 of FEMA 1999 — and the guide flags it in the issuance checklist so the round doesn't carry a silent compliance breach.
Is there a cap on how long a convertible instrument can stay unconverted?+
Yes — a convertible instrument must convert into equity within a maximum of 20 years under the Companies Act 2013 framework (per the rules on issue of preference shares), and the guide models the conversion timeline accordingly. Beyond conversion, interest on CCDs paid to a foreign investor attracts TDS under s.195 of the Income-tax Act 1961 and ECB-2 reporting obligations under FEMA until repaid or converted.