Sebi issues guidelines to set up alternative investment funds in IFSC

Markets regulator Monday issued detailed guidelines for setting up alternative investment funds in international financial services centres, pertaining to registration, compliance requirements and restrictions.

For registration as Alternative Investment Funds (AIFs), Sebi said any fund established or incorporated under IFSC in the form of a trust or a company or a limited liability partnership or a body corporate, can seek registration under the regulations.

An AIF operating in IFSC is peran mitted to make investment, the Securities and Exchange Board of India (Sebi) said in a circular.

Earlier, AIFs were permitted to invest in India through the FPI route, governing permissible investments by those funds operating in international financial services centres (IFSCs). Now, they may invest in India through the Foreign Venture Capital Investor or Foreign Direct Investment (FDI) route also.

Under the rules, each scheme of the AIF will have a corpus of at least $3 million.

"The AIF shall accept from an investor, an investment of value not less than $1,50,000. Further, for investors who are employees or directors of the AIF or employees or directors of the manager, the minimum value of investment shall be $40,000," Sebi said.

The manager or sponsor will have a continuing interest in the AIF of not less than 2.5 per cent of the corpus or $7,50,000 whichever is lower, in the form of investment and such interest will not be through the waiver of management fees.

Further, for Category III AIF, the continuing interest will be not less than 5 per cent of the corpus or $1.5 million, whichever is lower.

According to Sebi, an AIF set up in IFSC may invest in the units of other such funds established in international financial services centres.

In case, the corpus of the AIF (Category I and II) is more than $70 million, then sponsor or manager of such fund will have to appoint a custodian registered with Sebi for safekeeping of securities. It will be mandatory for Category III AIF to appoint a custodian.

An angel fund, a subcategory of AIF, needs to have a corpus of at least $7,50,000.

"Angel funds shall invest in venture capital undertakings (VCU) in India. Investment by such fund in any VCU should not be less than $40,000 and not exceed $1,500,000," the regulator said.

Gujarat International Finance Tec-City (GIFT) has been set up by the state government as India's first IFSC that brings together world-class infrastructure, connectivity, people and technology on a single platform for businesses across the world.

The Sebi, in March 2015, had issued a framework for establishing IFSCs as part of its efforts for setting up financial hubs in the country.