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11 February 2022

Regulatory Framework For Investment Funds In IFSC (Gift City) Proposed In Line With Global Best Practices | Listed Companies To Seek NOC From 75% Of Secured Creditors In Value For M&A Schemes

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IFSCA issues draft regulations for the framework of investment funds in the International Financial Services Centre (IFSC) region
India Finance and Banking
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  1. IFSCA issues draft regulations for the framework of investment funds in the International Financial Services Centre (IFSC) region

With a view to develop the framework for investment funds in IFSC, the International Financial Services Centre Authority (IFSCA) has proposed to issue IFSCA (Fund Management) Regulations, 2022 (Draft Fund Management Regulations/Draft Regulations), based on global best practices, focusing on the ease of doing business. A Committee of Experts on Investment Funds was set up by IFSCA to review global best practices and make recommendations to the IFSCA on the roadmap for the industry, and accordingly a committee report has been tabled before the IFSCA, and Draft Fund Management Regulations have been issued for public comments.

The Draft Regulations propose to govern retail schemes, non-retail schemes such as alternative investment funds (AIFs), portfolio management schemes (PMS), investment trusts such as REIT and InvIT, ESG schemes, self-managed family investment fund and other fund management activities. The Draft Regulations propose to inter alia repeal SEBI (Alternative Investment Funds) Regulations, 2012, SEBI (Mutual Funds) Regulations, 1996, with respect to their applicability in IFSC. Some of the key proposals include:

  • A green channel route to launch schemes, which will essentially allow launching of the schemes for subscription immediately upon filing with the IFSCA. This has been made available to Venture Capital Schemes or non-retail schemes soliciting money from accredited investors only;
  • Family investment fund recognition;
  • A unified registration for multiple fund activities;
  • Relocation benefits, as the minimum contribution requirement will not be mandatory in case of relocation of funds /schemes established or incorporated or registered outside India to IFSC;
  • Gold and Silver ETF fund managers can invest in Bullion Depository Receipts;
  • Liberal co-investment regime through a special purpose vehicle (SPV) or through a segregated portfolio by issuing a separate class of units;
  • Innovation to fund activities (fund lab);
  • Venture capital schemes for investing in primarily in unlisted securities of start-ups, emerging or early-stage venture capital undertakings;
  • Leverage and borrowing permitted for funds;
  • Investment up to a certain limit in physical assets such as real estate, bullion, art or any other physical asset. This would be an interesting avenue for art funds;
  • Launching of retail schemes such as mutual funds opening avenues for cross-border investments. They can also launch ETFs, which can be either equity, debt, commodity, hybrid, actively managed, etc.;
  • Special situation funds (SSFs) to invest in special situation asset – recently SEBI in the domestic space, had also recognized these funds;
  • Focus on ESG: A fund management entity managing AUM above USD 1 Billion as at the close of a financial year is required to have specified ESG governing mechanism in place, in addition to other ESG focused funds;
  • Setting up of investment trusts such REIT and InvIT;
  • Special regime for accredited investors;

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