AIFs are funds established or incorporated in India for the purpose of pooling capital by Indian and foreign investors for predetermined investing. The rules apply to all AIFs, including those operating as private equity funds, real estate funds and hedge funds.
The minimum ticket size for investing in AIFs is Rs 1 crore. Individuals with an annual income of Rs 50 lakh are allowed to invest in these vehicles. The Sebi board is likely lower these criteria.
WHAT ARE AIFS?
These are classified under three categories
Category- I
are those funds that get incentives from the government, Sebi or other regulator like infrastructure funds, SME funds etc.
Category- II
are those that can invest anywhere in any combination but are prohibited from raising debt, except for meeting their day-to-day operational requirements
Category- III
are those trading with a view to making short-term returns and includes hedge funds among others
209 Alternative Investment Funds (AIFs) have been registered since August 2012
The Murthy panel submitted its report to the market regulator in January. It proposed a favourable tax environment for investors, promoting onshore fund management, and changing the regulatory regime.
The panel also recommended lower taxes. AIFs attract 10 per cent long-term capital gains tax on transfer of shares of private limited companies.
“The panel has suggested several tax reforms. Sebi is not in a position to implement those but can recommend them to the finance ministry. Suggestions on sub-categorisation of AIFs and clarifications on investible limits may be implemented by regulator,” said Tejesh Chitlangi of IC Legal.
Sector players have been asking Sebi to repeal all investment management regulations such as AIF Regulations, PMS Regulations, Advisers Regulations and replacing them with a single AIF Manager Regulations. Chitlangi said such a move would be premature and might not be considered by Sebi.
Introduction of the securities transaction tax on private equity and venture capital investments is also part of the committee’s proposals.
Broader access to capital
Amit Maheshwari, partner, Ashok Maheshwary & Associates, said easing AIF regulations would provide start-ups broader access to capital. The current funding slowdown could be offset by these regulatory changes, he added.
The Sebi board is also likely to ease foreign portfolio investors (FPI) regulations. Only funds that are registered and regulated in their home market are now allowed to invest in India.
The board might also allow a single licence for equity and commodity brokers.