In order to encourage fund managers to set up alternative investment funds (AIFs) in international financial services centre (IFSC), SEBI has eased investment norms for IFSC domiciled AIFs. With this, IFSC domiciled AIFs can invest in securities in line with domestic AIFs.
So far, AIFs were restricted to invest in securities listed in IFSC, issued by companies incorporated in IFSC and issued by companies incorporated in India. With the new regulations, AIFs can now invest in start ups, unlisted securities and distressed papers.
In a circular, SEBI said, “Based on consultations held with stakeholders, it has been decided to harmonize the provisions governing investments by AIFs incorporated in IFSC with those provisions regarding investments applicable for domestic AIFs. Accordingly, AIFs incorporated in IFSC shall be permitted to make investments as per the provisions of the SEBI (Alternative Investment Fund) Regulations, 2012, and the guidelines and circulars issued thereunder, including the operating guidelines for AIFs in IFSC.”
An IFSC is exempted from certain domestic laws; 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).
Currently, GIFT does not have any AIF due to lack of clarity in taxation, regulations and so on. The move would help the industry to explore opportunities in IFSC domiciled AIFs.