As per the proposal, the fund sponsors (who do not fulfill certain conditions) will be given to the Reserve Bank of India (RBI).reserve Bank of IndiaTwo people familiar with the matter told ET that private equity, venture capital and public equity funds are allowed to be invested in the financial centre.
If approved, the sponsorship application for such alternative investment fund (aif) will be directly approved by IFSCA—a unified authority, set up in April 2020 under a separate statute for the development and regulation of financial products, services and institutions at the Gandhinagar Center, which itself is a financial services centre. Trying to install as .
Since IFSC is treated as ‘foreign territory’ from the point of view of exchange control, capital inflow to set up a fund in IFSC is treated as ‘outbound investment’ for running an offshore financial services subsidiary. A sponsor who fails to fulfill certain norms will have to take the permission of RBI before proceeding for investment fund creation,
ODI rules may have to be changed
Under these rules – in accordance with Rule 7 of the Foreign Direct Investment (ODI) Rules – the investor is required to have earned a net profit during the last three financial years from financial services activities, registered with the Financial Services Regulatory Authority of India, and Required capital adequacy criteria, among other things.
“If the asset management company of the local mutual fund sponsors an AIF in GIFT, it may not need to approach RBI as most of these conditions are likely to be met. But this is often not the case. Sponsor A Irregular investments could be a group company. Such an entity needs NOC from RBI… and it takes a lot of time,” said a source. “If RBI is to delegate powers to IFSCA, the ODI regulation has to change,” the person said.
IFSCA officials did not comment on the subject.
Category-1 AIFs (like VC and infra funds) and Category-2 (like private equity and debt funds) sponsors will have to pay 2.5% of the corpus or ₹5 crore, whichever is less.
Investments for Category-3 AIFs (who are allowed to invest the entire fund corpus in companies listed on Indian exchanges under the Foreign Direct Investment Policy) will have to invest 5% of the corpus or ₹10 crore, whichever is less. Category 1 and 2 funds can invest up to 49% in listed stocks.
An AIF’s manager (which is the asset management company in which the employees perform day-to-day operations) and the sponsor (which primarily lends its balance sheet) can be either two separate entities or combined into one. Huh.
One of the attractions of setting up AIF in IFSC is that investors in such funds are not required to file PAN or income tax return in India.
“Though the government has relaxed certain norms and made GIFT a tax friendly centre, it has not yet reached a critical mass. IFSCA has taken several initiatives and is working on various proposals to develop it. Even if FPIs (Foreign Portfolio Investors) do so. Neither move from Mauritius or Singapore to GIFT, IFSCA can be a hub for AIF. I think the government should be more regulatory to attract investment in IFSC Will consider the changes,” said a banker.
“The controversy has been around Indian entities making sponsor commitments for AIFs in IFSC, either directly or through an IFSC-based subsidiary. Many Indian groups struggle to meet outbound investment conditions. In such cases, The demand for RBI’s approval in the U.S. may be minimal and timing uncertain. In order to encourage as well as regulate IFSC-based activities, IFSC should be an optimal regulator to interface for such approvals,” the algo said. said Legal’s partner Richie Sancheti.