Convertible Notes, CCPS, and CCDs: How FEMA Reporting Actually Differs Across the Three
Convertible Notes vs CCPS vs CCD: How FEMA Reporting Differs Across the Three
Founders raising through convertible instruments often treat them as interchangeable — a note, a CCPS, a CCD, all just "a way to raise money before agreeing on valuation." Under FEMA, they are not interchangeable at all. Each instrument is reported differently, on a different form, with a different filing trigger — and confusing one for another is one of the more common compliance gaps that surfaces later, often during due diligence for a later funding round.
This guide breaks down how each instrument is actually treated under FEMA, and where founders most commonly go wrong.
Convertible Notes: The Startup-Specific Route
A convertible note is available only to DPIIT-recognised startups, and it comes with its own dedicated FEMA reporting form: Form CN, filed on the RBI's FIRMS portal within 30 days of receipt of funds.
This is the instrument's defining feature under FEMA. Unlike CCPS or CCDs, a convertible note is genuinely reported as debt at the point of issuance — it isn't folded into standard FDI equity reporting from day one.
That changes the moment the note converts into equity. Conversion is treated as a fresh, independent reporting event — reported through Form FC-GPR, entirely separate from the original Form CN filing. This is the single most common gap seen in note-based fundraising: Form CN gets filed correctly at issuance, and the conversion event — sometimes occurring a year or more later, during a subsequent round — gets missed because it doesn't feel like a "new" transaction.
CCPS: Treated as Equity From Day One
Compulsorily Convertible Preference Shares are treated as equity instruments under the FDI framework from the moment they are issued. The word "compulsorily" is doing real regulatory work here — FEMA's Non-Debt Instruments (NDI) Rules only classify an instrument as a capital instrument, and therefore eligible for FDI, if conversion into equity is mandatory rather than optional.
This means CCPS issuance is reported via Form FC-GPR within 30 days of allotment — the same form and timeline used for a straightforward equity round. There is no separate debt-style filing at issuance, because CCPS was never treated as debt to begin with.
CCDs: Debt in Structure, Equity Under FEMA
Compulsorily Convertible Debentures are the instrument most likely to cause confusion, because they are genuinely hybrid in nature — debt at issuance, paying interest during their tenure, and converting into equity later. But the same compulsory-conversion test that applies to CCPS applies here: because conversion isn't optional, FEMA treats CCDs as equity-equivalent from day one, exactly like CCPS.
That means there is no separate Form CN-style filing at issuance for CCDs. Instead, CCD issuance goes through Form FC-GPR within 30 days of the inward remittance, and FC-GPR must be filed again on conversion, reporting the actual equity shares allotted to the investor.
The Instrument That Looks Similar But Isn't: OCDs
One distinction is worth flagging explicitly, because it is a genuine trap for founders and even some advisors. Optionally Convertible Debentures (OCDs) are not capital instruments under FEMA at all. Because conversion into equity isn't mandatory — cash repayment of the principal remains a possible outcome — OCDs are classified as debt under the FEMA NDI Rules.
Any foreign investment structured through an OCD must follow the External Commercial Borrowing (ECB) route, not the FDI route. A founder who assumes "it converts eventually, so it's basically a CCD" can end up with an instrument that requires an entirely different compliance track — ECB registration, a Loan Registration Number, and monthly Form ECB-2 reporting — rather than a straightforward FC-GPR filing.
Pricing Discipline Applies Across All Three
Regardless of which instrument is chosen, the issue price — and, for CCDs and CCPS, the conversion price — must comply with RBI's pricing guidelines and be backed by a certified fair valuation from an eligible valuer. For CCDs specifically, there is an additional constraint on the coupon rate, which typically cannot exceed the SBI PLR-linked benchmark prescribed by RBI. None of this pricing discipline is relaxed simply because the instrument is structured as debt-like at the point of issuance.
Where FEMA Reporting Most Commonly Breaks Down
Assuming Form CN applies to CCPS or CCDs. It does not — Form CN is specific to convertible notes issued by DPIIT-recognised startups; CCPS and CCDs are reported through FC-GPR from the start.
Forgetting the second FC-GPR filing on conversion. This applies across all three instruments — notes, CCPS, and CCDs. The conversion event is always a fresh filing trigger, never a formality assumed to be covered by the original filing.
Treating OCDs as functionally the same as a CCD. The optional-versus-compulsory distinction is the entire test for whether an instrument qualifies for FDI treatment or must instead follow the ECB route.
Missing the DPIIT eligibility gate for convertible notes. A company that is not DPIIT-recognised cannot use the convertible note route at all — CCPS or CCDs become the relevant alternatives in that case.
Summary: Reporting at a Glance
Instrument
Filing at Issuance
Filing at Conversion
Convertible Note
Form CN, within 30 days of funds received (DPIIT startups only)
Form FC-GPR, as a fresh filing
CCPS
Form FC-GPR, within 30 days of allotment
Form FC-GPR, again on conversion
CCD
Form FC-GPR, within 30 days of remittance
Form FC-GPR, again on conversion
OCD
Not FDI-eligible — ECB route applies
ECB reporting framework, not FC-GPR
What to Check Before Choosing an Instrument
Before deciding between a convertible note, CCPS, or a CCD for your next foreign-funded round, confirm your DPIIT eligibility status, map out both the issuance filing and the conversion filing as two separate compliance events, and verify that the instrument's conversion terms are genuinely mandatory rather than merely expected or customary. Getting the instrument choice right at the term sheet stage avoids a reporting mismatch that is significantly more expensive — and more disruptive to a later funding round — to unwind after the fact.
Get Started
If you're structuring a round involving convertible notes, CCPS, or CCDs from a foreign investor, we'd be glad to help you map the correct FEMA filings for both issuance and conversion before the round closes.
Richa Kumar & Associates
India Set Up Advisory Group — FEMA / RBI Compliance
www.csrichakumar.com
This post is for general informational purposes and does not constitute legal advice. For guidance specific to your situation, consult a qualified professional.
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