Liberalised Remittance Scheme

India runs capital controls. A resident individual cannot simply wire money abroad to buy into a foreign fund. The Liberalised Remittance Scheme is the standing permission that makes it possible without seeking approval each time.

Introduced by the RBI on 4 February 2004 with a ceiling of USD 25,000 per year, the limit was raised to USD 250,000 per individual per financial year in June 2015, where it remains. It covers any permissible current or capital account transaction, or a combination of the two, subject to the conditions of FEMA, 1999.

For this paper, LRS is the door through which a resident investor reaches an offshore fund — and, historically, the reason Indian money could not reach foreign hedge funds at all.

The limit is per individual, per financial year, which means a family multiplies it. It is a remittance limit, not an investment limit: the same USD 250,000 window covers education, travel, gifts and foreign securities together.

The scheme matters in two places in the workbook.

Historically. Before 2015, foreign hedge funds typically set minimum investments as high as USD 100,000 per investor. Against a USD 25,000 LRS ceiling, an Indian resident individual simply could not meet the ticket — which is one reason hedge fund capital had to be raised domestically once the Category III AIF regime arrived. The alternative route was to acquire foreign securities out of a Resident Foreign Currency (RFC) account.

Currently. Where a Category III AIF uses an offshore fund structure — a pooling vehicle in Mauritius or Singapore investing into Indian investee companies — a resident Indian investor subscribing to that offshore vehicle is remitting under LRS, and the limit caps what they can commit. The limit is revised under FEMA from time to time.

A resident investor wants to commit to an offshore feeder of a Category III AIF strategy. Take the rupee at an assumed Rs 85 to the dollar — the exchange rate is not a workbook figure, it is here only to make the arithmetic visible.

LRS limit, one individual   USD 2,50,000  ≈  Rs 2.125 crore per financial year
Family of four              USD 10,00,000 ≈  Rs 8.50  crore per financial year

Against that, a domestic Category III AIF asks a minimum ticket of Rs 1 crore — comfortably inside one individual's annual LRS headroom, and reachable without any remittance at all.

Now run the clock back. A foreign hedge fund with a USD 100,000 minimum:

Under the pre-2015 limit:  USD 100,000 ticket vs USD 25,000 LRS limit
                           →  four years of an individual's entire LRS window,
                              for one subscription.   Not feasible.

Under the current limit:   USD 100,000 ≈ Rs 85 lakh, against USD 250,000
                           →  40% of one year's window.  Feasible.

That single change of ceiling is why the workbook treats June 2015 as a turning point in how Indian capital could reach alternative strategies — and why, before it, the strategies had to come onshore instead.

Chapter 2 (Growth of Alternative Investment Funds in India and Suitability of Category III AIFs) uses LRS to explain why hedge funds had limited options for marketing to Indian investors before the AIF Regulations, and Chapter 4 (Fund Structures and Service Providers) uses it again when setting out offshore fund structures and how resident investors reach them. Expect a direct figure question — the current limit is USD 250,000 per person per financial year — and a date-and-figure question on the 2004 introduction at USD 25,000 and the June 2015 increase.

• USD 250,000 is per individual per financial year, not per family, per transaction or per calendar year.
• The limit is set by the RBI under FEMA, not by SEBI. LRS is an exchange control facility, not a securities regulation.
• It covers current and capital account transactions together. Foreign fund subscriptions share the same window as education and travel.
• USD 25,000 is the 2004 figure, not the current one. The workbook states both; questions exploit the pair.
• LRS is a remittance permission, not a tax exemption. Money sent out under LRS remains taxable in India under the ordinary provisions, and a TRC governs what the destination country can charge.
• The RFC account route is an alternative to LRS for acquiring foreign securities, not an extension of the LRS limit.