For an Indian startup’s first institutional cheque, the practical choice is CCPS or CCD — both are FEMA-recognised capital instruments that compulsorily convert into equity. A plain SAFE note, the US instrument, is not a recognised capital instrument under India’s FEMA rules, so foreign money cannot cleanly come in against a vanilla SAFE. Most early Indian rounds use CCPS; a CCD suits an investor who wants a debt-like instrument before conversion. The Indian “iSAFE” is itself structured as CCPS.
| Factor | CCPS | CCD | SAFE note |
|---|---|---|---|
| Nature | Preference shares (equity-type) | Debentures (debt that converts) | Contract for future equity |
| Converts to equity | Yes — compulsorily | Yes — compulsorily | On a future trigger event |
| FEMA capital instrument | Yes | Yes | No |
| Works for foreign investment | Yes | Yes | Not in vanilla form |
| Valuation at issue | Required (FEMA pricing) | Required (FEMA pricing) | Deferred to conversion |
| RBI reporting | FC-GPR on issue | FC-GPR on issue | No clean reporting route |
What are CCPS, CCDs and SAFE notes?
Definition — CCPS: Compulsorily Convertible Preference Shares are preference shares that must convert into equity shares on agreed terms. They carry preference rights — typically a liquidation preference and anti-dilution protection — and are the default instrument for priced and structured rounds in India.
Definition — CCD: Compulsorily Convertible Debentures are debentures that must convert into equity. Before conversion the instrument behaves like debt; on conversion it becomes equity. CCDs are used when an investor wants a debt-like instrument in the interim.
Definition — SAFE note: A Simple Agreement for Future Equity is a US instrument popularised by Y Combinator. It is a contract: the investor pays now and receives equity later, when a priced round or other trigger happens. It is not a share and not a debenture.
Why a plain SAFE note does not work for foreign investment in India
This is the single most important thing for an Indian founder to understand, because foreign investors will often hand you a SAFE as if it were standard.
India’s FDI framework — the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 — allows an Indian company to receive foreign investment only against a recognised capital instrument: equity shares, CCPS, CCDs or share warrants. A plain SAFE is none of these. It is a promise of future equity, with no instrument actually issued when the money comes in.
That creates a real problem. When foreign money lands in your company, FEMA expects a capital instrument to be issued against it within the prescribed timeline, and the issue to be reported on FC-GPR. A vanilla SAFE leaves the foreign money sitting in the company with no instrument issued and no clean reporting route — a FEMA exposure that will surface in your next round’s due diligence. The fix is not to argue with the rules; it is to use an instrument India recognises.
CCPS vs CCD — when to use which
Both are FEMA-compliant and both convert to equity, so the choice is about investor preference and structuring:
- CCPS is the usual choice. It is equity in substance, sits cleanly on the cap table as preference shares, and carries the liquidation preference and anti-dilution rights investors expect. Most Indian VC rounds are CCPS.
- CCD suits an investor who wants the instrument to be debt-like until conversion — for example, where the investor wants a fixed coupon in the interim, or where the structuring or accounting treatment of debt-before-conversion is preferred. CCDs are common in some structured and bridge rounds.
Whichever you pick, the same FEMA discipline applies: a valuation supporting the price, issue within the timeline, and FC-GPR reporting of the foreign investment.
What about iSAFE / India SAFE notes?
Because founders liked the speed and simplicity of SAFEs, the Indian ecosystem built an adaptation — the iSAFE (India SAFE) note. The key point: an iSAFE is not a contract for future equity; it is structured as CCPS. It keeps the light-touch, founder-friendly feel of a SAFE but, legally, an actual capital instrument (compulsorily convertible preference shares) is issued. That is what makes it FEMA-compliant where a vanilla SAFE is not. If a foreign investor insists on “a SAFE”, an iSAFE-style structure is usually the route that keeps you compliant.
How should you take your first ₹2 crore cheque?
For most early Indian startups, the clean answer is CCPS. It is FEMA-recognised, it is what domestic and foreign investors are used to seeing, and it sets up a tidy cap table for the priced rounds that follow. A CCD works where the investor specifically wants a debt-like instrument before conversion. A plain US-style SAFE should be redirected to an iSAFE/CCPS structure before any foreign money moves.
In the rounds we help close, the cheapest mistake to avoid is taking money first and deciding the instrument later. Fix the instrument, the valuation and the FC-GPR plan before the wire — not after.
Frequently asked questions
Can an Indian startup use a SAFE note?
Not in its plain US form for foreign investment. A SAFE is not a recognised capital instrument under India’s FEMA rules, so foreign money cannot cleanly come in against a vanilla SAFE. The Indian iSAFE is used instead, and it is structured as CCPS.
What is the difference between CCPS and CCD?
CCPS are preference shares that compulsorily convert to equity and are equity in substance. CCDs are debentures that compulsorily convert to equity and behave like debt until conversion. Both are FEMA-recognised capital instruments.
Why do Indian startups use CCPS instead of SAFEs?
Because CCPS is a FEMA-recognised capital instrument that can take foreign investment and be reported on FC-GPR, while a plain SAFE is not recognised under the FEMA NDI Rules. CCPS also carries the liquidation preference and anti-dilution rights investors expect.
Is an iSAFE the same as a US SAFE?
No. An iSAFE keeps the simplicity of a SAFE but is legally structured as compulsorily convertible preference shares, so an actual capital instrument is issued. That is what makes it FEMA-compliant for Indian companies.
Do CCPS and CCDs need FC-GPR reporting?
Yes. When CCPS or CCDs are issued to a non-resident investor, the company must report the issue to the RBI on FC-GPR within 30 days of allotment.
Reviewed by CS Sapna Malpani, a practising Company Secretary based in Bangalore who structures funding instruments and FEMA reporting for venture-backed startups. This article is general information, not legal advice. About Sapna Malpani.
Last reviewed: May 2026.