SEBI has permitted Foreign Portfolio Investors (FPIs) to invest in units of REITs, Infrastructure Investment Trusts (InvIts) and Category III AIFs.
Experts believe that this will help AIFs get a larger pool of investors. “Currently, we have a limited set of investors such as PSU banks, corporates and ultra HNIs because of the Rs. 1 crore ticket size. Now, Asia focused offshore funds can invest in AIFs. This can increase the AUM of AIFs substantially,” said Vikas V Gupta, Head - Research & Product Development, Arthveda Fund Management.
Gupta said that AIFs will no longer be required to establish an offshore business to attract FPIs. “Now we can get foreign investments by just having a domestic fund. We don’t have to manage two entities,” points out Gupta.
Experts believe that allowing FPI investment in AIFs could help the industry attract $25 million over the next few years if the rules on taxation, exit and remittances are sorted out. “AIFs can provide attractive returns to FPIs. While we haven’t seen a huge pick up in foreign investments in AIFs despite a few players reaching out to such investors I believe there is still a potential,” said Sriram Iyer, CEO, Religare Private Wealth.
SEBI has said an FPI should not hold more than 25% stake in a category III AIF. These funds aim to generate short term returns by using complex trading strategies and use leverage by investing in listed or unlisted derivatives. The commitment raised in this category has gone up to Rs.4,554 crore as on December 2015 from Rs.1,500 crore in the corresponding period last year.
FPIs will also be permitted to acquire NCDs/bonds, which are under default, either fully or partly, in the repayment of principal on maturity or principal installment in the case of an amortizing bond. “Such NCDs/bonds restructured based on negotiations with the issuing Indian company, shall have a minimum revised maturity period of three years. All investments by FPIs in such bonds shall be reckoned against the extant corporate debt limit of Rs. 2.44 lakh crore,” said the SEBI circular.
As on December 2015, there are 158 AIFs operational in India. AIFs witnessed an impressive growth of over 56% in their assets under management in just one year. The commitment raised (equivalent to AUM in MF parlance) as on December 2015 has increased to Rs. 30,687 crore from Rs. 19,680 crore in the corresponding period last year, shows SEBI data.
