Five questions decide your funding instrument. Is the round priced or valuation-deferred? Is the company DPIIT-recognised? How big is each cheque? Is the money domestic or foreign? And does the investor want equity risk or a debt floor? Walk the questions in order and the instrument almost always picks itself. This page is the decision guide – with the law behind every branch, and links to the deep-dive guide for whichever instrument you land on.
The decision tree
| # | Question | If YES | If NO |
|---|---|---|---|
| 1 | Is an institutional lead pricing the round now? | CCPS, priced round with SHA → CCPS guide | Continue ↓ |
| 2 | Deferring valuation – is the company DPIIT-recognised AND is every cheque ₹25 lakh+? | Convertible note → CN guide | Continue ↓ |
| 3 | Deferring valuation with smaller / mixed cheques? | iSAFE on CCPS rails → iSAFE guide | Continue ↓ |
| 4 | Is the investor a foreign parent/affiliate wanting interim yield? | CCD (deductible coupon, FDI-compliant) → CCD section | Continue ↓ |
| 5 | Founders, family, ESOP exercise, or an angel who wants simplicity? | Plain equity with a clean SHA | Reconsider Q1 – you are probably pricing a round |
The overlay questions that veto the tree
Foreign money? Only compulsorily convertible instruments (equity, CCPS, CCD) are FDI; optionally convertible anything is ECB territory. Pricing certificate at or above fair value, FC-GPR in 30 days, sectoral caps, and PN3 approval for land-border investors all apply. CNs are open to foreign investors with Form CN reporting. NRI money? The Schedule IV non-repatriation route gives domestic treatment for every instrument including CNs (Rule 18(4)). Debt with security instead of equity risk? That is venture debt – NCDs, a different animal from all of the above. Government money? SISFS’s market-entry tranche arrives as convertible debentures on its own standard terms – see the government funding guide.
Worked routings
The mistakes this tree prevents
Issuing a CN without DPIIT recognition – the money becomes a deposit; use iSAFE/CCPS instead. Splitting a CN below the ₹25 lakh floor – same problem; pool through an SPV. Optionally convertible instruments to foreign investors – not FDI; you have accidentally borrowed ECB with the wrong paperwork. Full-ratchet anti-dilution for foreign CCPS holders – collides with the FEMA conversion-price floor set at issuance. Plain equity to a large angel with no SHA – no exit rights, no tag-along, future governance friction. Each of these is a real diligence finding we see in Indian Series A processes – cheap to prevent, expensive to cure.
Still between two branches?
My Cloud Accountant will look at your cap table, investors and timeline and confirm the instrument – then paper it correctly the first time.
Talk to an expertFrequently Asked Questions
Can we mix instruments in one round?
Yes, and it is common: a priced CCPS lead with a CN second-close at the same economics, or CCPS for institutions and iSAFE for small angels. Keep conversion economics aligned across instruments – divergent caps and discounts inside one round create conflict at the next one.
Which instrument is fastest to close?
A CN for a DPIIT startup is the lightest (agreement + board/SR + Form CN if foreign). iSAFE/CCPS and priced CCPS carry the full private-placement sequence – valuation report, PAS-4/PAS-3 – typically 3–5 weeks. Venture debt adds trustee and charge filings.
Does the instrument change my tax as a founder?
Not directly – founder shares are plain equity regardless. Indirectly yes: instrument choice drives dilution timing (notes convert later, at unknown prices), and s.70 of the Income-tax Act 2025 makes conversions tax-neutral for investors, so the cap table you see at the next round reflects economics agreed today.
What should a first-time angel default to?
Whatever the round’s standard is – but check three things: if it is a CN, that DPIIT recognition is live and your cheque clears ₹25 lakh; if an iSAFE, that you understand you become a CCPS shareholder with a maturity-date conversion; if priced CCPS, that the SHA gives you tag-along. And from 8 September 2026, fund-route investing requires accreditation.
Last reviewed: July 2026. Cross-references: Companies Act 2013, FEM (NDI) Rules 2019, Deposit Rules 2014, Income-tax Act 2025.