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Edelweiss Insights Domestic fund managers should be allowed to manage AIFs headquartered in IFSC

Domestic fund managers should be allowed to manage AIFs headquartered in IFSC

If implemented, this will help fund houses managing AIFs attract foreign investors.
Team Cafemutual Jan 20, 2018

The Alternative Investment Policy Advisory Committee has suggested that a domestic fund manager or sponsor of an alternative investment fund (AIF) should be allowed to manage AIFs headquartered in International Financial Services Centre (IFSC). 

If implemented, this will help fund houses managing AIFs attract foreign investors since they want CIOs or star fund managers to manage their investments.  

In its recommendation, the committee said, “Domestic fund managers and sponsors should be permitted to manage AIFs domiciled in an IFSC.”

The committee has also recommended introduction of skin in the game for fund managers in IFSC based AIFs. “SEBI AIF regulations require such sponsor commitments as ‘skin-in-the-game’. Accordingly, FEMA regulations should be amended to enable investment by a domestic fund manager or sponsor in an AIF domiciled in an IFSC,” the committee stated in the report.

Here are some other key recommendations of the committee (for IFSC based AIF)

  • Exemption from tax from income earned by offshore investors
  • Relaxation from filing returns and obtaining PAN for offshore investors
  • Should be recognized by Income Tax Act
  • No limitation on overseas investments
  • Taxation of Category III AIFs should be in line with equity mutual funds.

An IFSC does not follow domestic economic law; instead, they follow international practices. IFSCs deals with flows of finance, financial products and services across borders. Companies setting up offices in IFSCs cannot deal in local currency. In addition, IFSCs can provide fund raising services for individuals, corporations and governments and wealth management services to foreign investors. In India, Gandhinagar has one IFSC called Gujarat International Finance Tec-City (GIFT).

Earlier, the regulator had constituted a 21-member committee to prepare a new regulatory framework for alternative investments.

The market regulator has sought comments on these recommendations before February 9.

To read the full report click here.

 

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