In a bid to attract offshore fund managers to relocate to India, SEBI has come out with a consultation paper detailing the procedure for registration and other criteria to set up shop in India. However, industry officials believe that offshore fund managers are in a wait and watch mode.
They say that while modifying the Permanent Establishment (PE) norms is a step in the right direction more needs to be done by the Finance Ministry to attract offshore fund managers. “This is a first enabling step. It may not have such an immediate impact to encourage offshore fund managers to relocate to India because things like transfer pricing, how is the income booked and many other tax related issues need to be sorted out,” says Sunil Subramaniam, CEO, Sundaram Mutual Fund.
Jimmy Patel, CEO, Quantum Mutual Fund says that it will take some time for offshore fund managers to move to India. “We have to read the fine print as some issues need to be resolved by the government. For instance, transfer pricing is an issue locally and internationally.”
SEBI has proposed that existing foreign based fund managers wanting to relocate to India should have a net worth of Rs. 2 crore and need to have minimum of two employees with relevant qualifications and experience.
Karun Marwah, Head of International Business, Motilal Oswal Financial Services, says that if the final guidelines create a level playing field for all fund managers, Indian can become an attractive destination for offshore fund managers. “We need to see wait for the final guidelines and see how much of this (consultation paper) is implemented. Also, you need to have the right talent for managing these funds,” says Karun.
The eligible fund managers need to segregate funds and securities of Eligible Investment Fund (EIFs) from its other clients. Also, they have to maintain and segregate their books and accounts pertaining to activities as portfolio manager to EIFs and other clients. They will have to provide information regarding the name and jurisdiction of the EIF, assets under management of each EIF and its breakup according to the nature of services provided to it (discretionary, non-discretionary, advisory) to SEBI on a half-yearly basis.
Eligible Investment Fund (EIF) is a fund established or incorporated or registered outside India, which collects funds from its members for their benefit. SEBI has laid out a number of criteria for EIFs to operate in India. For instance, the aggregate investment in the fund by Indian residents should not exceed 5% of the corpus of the fund. Further, the fund should not carry on or control and manage any business in India or from India.
The Union Budget 2015-16 had paved way for encouraging offshore fund managers to relocate to India by modify the Permanent Establishment (PE) norms. Now, the mere presence of a fund manager in India would not constitute PE of the offshore funds resulting in adverse tax consequences.
The regulator has sought public comments on this consultation paper by July 03.
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