On 19th April, 2022, Ministry of Finance introduced International Financial Services Centres Authority (Fund Management) Regulations, 2022. These regulations aim to define powers of the International Financial Services Centres Authority (IFSCA) in respect of fund management which will be applicable from 2nd May, 2022.
Key features-
- International Financial Services Centres Authority prescribes the manner of conduct, roles and limitations of all the entities that register themselves with the Authority as a Management Entity [Para 2(p) of the Regulation].
- It defines the investment valuation norms, governance strategies in the code of conduct by the entities.
- Fund Management Entity (FME) seeks to bring together accredited investors and pool in their money to undertake the business of fund management under these regulations.
- Any FME intending to seek business has to get it registered under three categories-
- Authorised FME: Where investors investing above the specified threshold by way of private placement and invest in start-ups or early-stage ventures through Venture Capital Scheme.
- Registered FME (Non-Retail): Where investors investing above a specified threshold by way of private placement for investing in securities, financial products and such other permitted asset classes through one or more restricted schemes.
- Registered FME (Retail): Where investors under one or more schemes for investing in securities, financial products and such other permitted asset classes through retail or restricted schemes.
- Any individual applying in an IFSC by forming a company or LLP/branch or any other form prescribed by the Authority has to designate Key Managerial Personnel.
- Key Managerial Personnel (Para 2(x) of the Regulation) is any officer or personnel of the FME who are members of its core management team and is responsible for all the activities of the FME including fund management, risk management and compliance.
- Schemes adopted for Fund Management–
Broadly, under Chapter III of the Regulation, any Entity has to launch a scheme with prior permission of Board of Directors to meet the basic requirements of Fund Management. There are three categories under which the schemes may be launched.
Venture Capital Schemes: Venture capital fund is an Alternative Investment Fund as referred under the Income Tax Act, 1961, the Foreign Exchange Management Act, 1999. This launched through private placement filed in an open subscription by investors. They constitute maximum tenure in a close ended manner with minimum limit of 3 years. A SPV is functions through a segregated port folio which may undertake leverage as disclosed in the placement memorandum.
Restricted Schemes (Non-Retail Schemes): Non retail schemes invest in SME Funds, social venture funds, infrastructure funds, ESG Funds, Special Situation funds. The investors can less than a thousand. In a restricted scheme segregated portfolios shall, in no circumstance, be on terms more favourable than those offered to the common portfolio of the restricted scheme.
Retails Schemes: It is a scheme under which the investors come together to pool in their money through an offer document within 12 months. Retail schemes shall have at least 20 investors with no single investor investing more than 25%. The FME will invest minimum of 1% of the AUM of the scheme or USD 200,000, within 45 days.
Special Situation Fund: Special situation fund shall be close ended and the minimum tenure of a special situation fund shall be 3 years. The tenures range between 2-3 Years, subject to the will of the investor to continue with the scheme. A special situation fund shall invest only in special situation assets (Para 54 of the Regulation).
- Chapter 5 of the Regulation states about the policies/strategies of the FME in which it undertakes governance on environmental friendly material sustainability-related risks and opportunities. It complies with the requirements of the assets in respect to material, benchmark and other risks involved.
- Investment Conditions include portfolio management services and Fund Manager (Para 2(q) of the Regulation) operate as manager to various investment trusts (InvIT and REIT) by registering under single unified from IFSCA.
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- InvIT – It is mandatory investment in the infrastructure projects made in holdco and/ or SPVs or infrastructure projects or securities.
- REIT- It is investment through SPV/holdco which may invest in real estate assets, gvernemnt securities, cash and cash-equivalent items, etc.
- Ministry of Finance has set-up Family Investment Fund. I will undertake all activities related to managing family investment fund specified by the Authority. It excludes requirements under Regulation 5 and 8 on Legal form and Net-worth of an FME.
- Family Investment Fund can invest in a close-ended tenure in:
(a) Securities issued by the unlisted entities;
(b) Securities listed or to be listed or traded on stock exchanges in IFSC, India or foreign jurisdictions;
(c) Money market instruments;
(d) Debt securities;
(e) Securitised debt instruments, which are either asset backed or mortgage-backed securities;
(f) Other investment schemes set up in the IFSC, India and foreign jurisdiction;
(g) Derivatives including commodity derivatives;
(h) Units of mutual funds and alternative investment funds in India and foreign jurisdiction;
(i) Investment in Limited Liability Partnerships;
(j) Physical assets such as real estate, bullion, art, etc.; or
(k) Such other securities or financial product /assets or instruments as specified by the Authority.