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The International Finance Services Centre Authority, the regulator of financial products in the GIFT City has issued a consultation paper on fund management in which it has proposed measures that will ensure ease of doing business, put in place additional safeguards and provide more clarity on existing regulations.
Among one of the key proposals is that the fund management entities (FMEs) operating in GIFT city can launch retail schemes without obtaining approval from IFSCA to appoint a fiduciary person. Sharing the rationale, the IFSCA said, “As the regulations already mandate ‘Fit and Proper’ requirement for fiduciaries and also provides a code of conduct for them, the requirement to take prior approval from IFSCA regarding their appointment is proposed to be done away with.”
With the recent budget announcement, FMEs aim to launch retail-oriented schemes, which will lead to further expansion of the fund management industry in IFSC and add another dimension to its growth, believes IFSCA.
Providing more clarity on retail funds, IFSCA clarified that retail schemes can invest in India or foreign through listed, to be listed and unlisted securities, money market instrument and debt papers, securities debt instruments both asset backed or mortgage backed, units of mutual funds and AIFs, commodity derivatives for hedging purposes and liquid funds or bank deposits.
Further, retail schemes cannot invest more than 25% of their corpus in associate companies.
Also, the minimum fund size should be at least USD 3 million (close to Rs.25 crore).
Here are the other key proposals of the IFSCA on fund management:
License requirement: Family offices doing fund management activities in GIFT city will have to seek IFSCA registration.
Flexibility in building team: FMEs should appoint a principal officer responsible for overall activities which is not limited to fund management, risk management and compliance. Further, FME can appoint only one official for compliance and risk management. FMEs having AUM of at least USD 1 billion (over Rs.8400 crore) should appoint additional key management person (KMP) for fund management.
Relaxed criteria for appointment of KMP: Apart from post graduate degrees, KMPs (key management person) can have post graduate diploma in finance, law, accountancy and so on.
Extended validity of placement memorandum: The validity of placement memorandum of venture capital funds and restricted FMEs (all categories of AIFs) can be increased from 6 months to 12 months from the date of filing with the authority. This will give more time to VCs and AIFs to declare first close and ensure that the fund meets minimum size of corpus.
More relaxation in terms of size: VC cannot onboard more than 50 investors. Accredited investors can invest at least USD 2.50 lakh. Minimum investment amount for accredited investors can be reduced to USD.60,000 if they are employees, directors or partners of the FME.
Further, the minimum corpus in VC should be reduced to USD 3 million and the fund cannot exceed the size of USD 200 million.
Investments have to be made in companies who have not completed 10 years.
Similarly, AIFs can have up to 1000 investors. Accredited investors will have to invest at least USD 1.50 lakh (USD 40,000 for employees and directors of such a scheme).
Open ended restricted schemes (largely Cat III AIFs) can invest up to 25% in unlisted space.
Further, the minimum corpus in restricted funds should be reduced to USD 3 million. There will be not restriction in fund size.
Concept of NAV of AIFs: FMEs should disclose NAV every month within 15 days from the end of the month in open ended schemes. Close ended scheme can disclose NAV on half yearly basis.
More relaxation to PMS: The minimum ticket size should be reduced from USD 1.50 crore to USD 75,000 in PMS. This will also be applicable for advisory services PMS.
However, the minimum threshold will not be applicable for accredited investors.
A specific client account has to be maintained in IFSC registered broker dealer to carry out transactions.
You can submit your feedback on these proposals by August 26, 2024.
To know more about opportunities for MFDs in GIFT City, register for the upcoming CafeAlt Conference 2024 scheduled on August 23 in Mumbai.
