AIFs' large offshore investor base likely to face more restrictions

Regulators suggest change in FEMA rules to treat such funds as indirect foreign investment

Alternative investment funds (AIFs) where the majority of investors are non-resident or offshore could be treated as indirect foreign investments.

Market regulator Securities and Exchange Board of India (Sebi) and banking regulator the Reserve Bank of India (RBI) have recommended to the government to make the changes in the norms. This comes amid concerns over circumvention of regulations through use of the AIF structure.

Post the changes, such investments will be subject to sectoral caps and foreign investment guidelines.

At present, classification of investments made by an AIF is based on the domicile of ownership or control of the fund