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Alternative Investment Funds Comparative Guide –

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1 Legislative and regulatory framework

1.1 In broad terms, which legislative and regulatory provisions
govern alternative investment funds in your jurisdiction?

The establishment and functioning of alternative investment
funds (AIFs) in India are regulated by the Securities and Exchange
Board of India (SEBI) through the comprehensive framework provided
in the SEBI (Alternative Investment Funds) Regulations, 2012
(‘AIF Regulations’), as amended from time to time. Along
with these regulations, SEBI issues guidelines and circulars that
help to shape the regulatory landscape for AIFs.

AIFs must also adhere to various regulatory frameworks,
including:

  • the SEBI (Intermediaries) Regulations, 2008;

  • the Prevention of Money Laundering Act, 2002;

  • the SEBI (Foreign Portfolio Investor) Regulations, 2019 (if
    AIFs are receiving the foreign investments from foreign portfolio
    investors);

  • the Foreign Exchange Management Act, 1999 and applicable rules
    and regulations thereunder such as:

    • the Foreign Exchange Management (Non-debt Instruments) Rules,
      2019;

    • the Foreign Exchange Management (Mode of Payment and Reporting
      of Non-Debt Instruments) Regulations, 2019;

    • the Foreign Exchange Management (Overseas Investment) Rules,
      2022; and

    • the Foreign Exchange Management (Overseas Investment)
      Regulations, 2022; and


  • the Income Tax Act, 1961 and the applicable rules
    thereunder.

An AIF excludes funds governed by:

  • the SEBI (Mutual Funds) Regulations, 1996;

  • the SEBI (Collective Investment Schemes) Regulations, 1999;
    or

  • any other regulations under the purview of the SEBI for the
    regulation of fund management activities.

Additionally, the AIF Regulations provide specific exemptions
from registration for entities such as:

  • family trusts established for the benefit of
    ‘relatives’ as defined in the Companies Act, 1956;

  • employee welfare trusts or gratuity trusts established for the
    welfare of employees; and

  • ‘holding companies’ as defined in Section 4 of the
    Companies Act, 1956.

In the International Financial Services Centre (IFSC), situated
in Gujarat International Finance Tec (GIFT) City, funds and the
entities responsible for their management – termed ‘fund
management entities’ (FMEs) – operate under the
regulatory jurisdiction of the International Financial Services
Centres Authority (IFSCA). The regulatory framework governing these
entities is defined by the IFSCA (Fund Management) Regulations,
2022 (‘FM Regulations’), which are complemented by
additional guidelines and circulars issued by the IFSCA.

1.2 Do any special regimes or provisions apply to specific
types of alternative investment funds?

Category I AIFs:

  • Investment focus: Start-ups, early-stage ventures, social
    ventures, small and medium-sized enterprises (SMEs), infrastructure
    and other sectors deemed socially or economically desirable by
    government or regulators.

  • Includes: Venture capital funds (VCFs), SME funds, social
    impact funds, infrastructure funds, special situation funds and
    others as specified.

  • Clarification: Funds perceived to have positive spillover
    effects on the economy, eligible for incentives or concessions. The
    trusts or companies formed under this category are construed as
    ‘venture capital companies’ or ‘VCFs’ as specified
    under the Income Tax Act.

Category II AIFs:

  • Investment scope: Excludes Categories I and III.

  • Financial operations: Do not undertake leverage or borrowing
    beyond day-to-day operational requirements and as permitted by the
    AIF Regulations.

  • Includes: Private equity funds, debt funds without specific
    government or regulatory incentives.

Category III AIFs:

  • Investment strategy: Employ diverse or complex trading
    strategies; may use leverage, including through derivatives (listed
    or unlisted).

  • Includes: Hedge funds, funds aimed at short-term returns and
    other open-ended funds without specific government or regulatory
    incentives.

Specified AIFs under Regulation 19 of the AIF
Regulations:

  • Angel funds:

    • A sub-category of VCFs under Category I AIFs. They are allowed
      to make investments in start-ups.

    • Investors include:

      • individuals with:

        • net tangible assets of at least INR 20 million, excluding the
          value of the principal residence and early-stage investment
          experience;

        • serial entrepreneur experience; or

        • at least 10 years’ senior management experience;


      • bodies corporate with a net worth of at least INR 100 million;
        and

      • AIFs or VCFs registered under regulations.


  • Special situation funds (SSF):

    • Category 1 AIFs specialising in special situation assets
      aligned with their investment objectives, and eligible to act as a
      resolution applicant under the Insolvency and Bankruptcy Code,
      2016.

    • An applicant can seek registration as an SSF, adhering to
      Chapter II of the SEBI Regulations.

    • Each SSF scheme must specify its corpus, as determined by
      SEBI.

    • Exclusive acceptance of investments from other AIFs is
      prohibited, except those classified as SSFs.


  • Corporate debt market development funds:

    • Formed as a trust with a registered deed under the Registration
      Act, 1908.

    • Seek registration as an AIF under Chapter II of the AIF
      Regulations.

    • Closed-ended funds with a 15-year tenure, extendable with
      SEBI’s approval.

    • Units offered to asset management companies and specified
      debt-oriented schemes of mutual funds.

    • Investments in line with the SEBI (Mutual Funds) Regulations,
      1996.

    • Manager or sponsor maintains a continuing interest of at least
      INR 50 million.

    • Borrowing limit of up to 10 times the corpus, subject to
      SEBI’s conditions.

Large-value funds (LVFs)/accredited funds: An
LVF for accredited investors refers to an AIF or a scheme within an
AIF. In this context:

  • every investor – excluding the manager, sponsor and
    employees or directors of the AIF, as well as employees or
    directors of the manager – must qualify as an accredited
    investor; and

  • each accredited investor must make a minimum investment of INR
    700 million.

AIF categories in the IFSC in GIFT City:

  • Authorised FMEs:

    • Target accredited investors or those investing above a
      specified threshold via private placement.

    • Invest in start-ups or early-stage ventures through the Venture
      Capital Scheme.

    • Family investment funds investing in permitted asset classes
      should register as authorised FMEs.


  • Registered FMEs (non-retail):

    • Gather funds from accredited investors or those exceeding a
      specified threshold through private placement.

    • Invest in securities, financial products and permitted asset
      classes through restricted schemes.

    • Permitted to offer portfolio management services and act as
      investment managers for the private placement of investment trusts
      (real estate investment trusts (REITs) and infrastructure
      investment trusts (InvITs)).

    • Have the flexibility to engage in activities allowed for
      authorised FMEs.


  • Registered FMEs (retail):

    • Collect funds from all investors or a specific section under
      one or more schemes.

    • Invest in securities, financial products and permitted asset
      classes through retail or restricted schemes.

    • Can act as an investment manager for the public offer of
      investment trusts (REITs and InvITs).

    • Have the authority to launch exchange-traded funds.

    • Empowered to undertake activities allowed for authorised FMEs
      and registered FMEs (non-retail).

1.3 Do the legislative and regulatory provisions governing
alternative investment funds have extra-territorial reach?

The AIF Regulations encompass provisions that extend their reach
beyond India’s borders. In case of breaches involving both the
AIF Regulations and the Foreign Exchange Management Act (FEMA)
Regulations, SEBI and the Reserve Bank of India (RBI) have
regulatory powers. Notably, these powers are not limited to actions
against the AIF alone but extend to the AIF’s manager, sponsor
and its respective promoters.

In accordance with Regulation 15(1)(a) of the AIF Regulations,
AIFs are permitted to invest in securities of companies
incorporated outside India, subject to the following conditions or
guidelines set forth by the RBI and SEBI:

  • SEBI Circular SEBI/HO/IMD/DF1/CIR/P/2018/103/2018 of 3 July
    2018 and SEBI Circular CIR/IMD/DF/7/2015 of 1 October 2015 set out
    the legal framework under which overseas investment by AIFs and
    VCFs takes place. This framework encompasses the allocation of
    investment limits on a ‘first come, first served’ basis,
    contingent upon availability within the block limit. The 2015
    circular specifies that not more than 25% of an AIF’s
    investible funds can be invested overseas. Further, provisions
    within the framework govern:

    • the conditions for investment;

    • the approval procedure;

    • the timeline for investment;

    • disclosure requirements; and

    • regulatory compliance.


  • Overseas investments by AIFs and VCFs
    are subject to the Foreign Exchange Management (Transfer or Issue
    of Any Foreign Security) Regulations, 2004, including amendments
    and related directions as issued by the RBI from time to time. Such
    AIFs and VCFs must also comply with any other FEMA regulations and
    RBI guidelines, as amended from time to time, with respect to any
    structure which involves the overseas direct investment route. AIFs
    and VCFs must report on the utilisation of overseas limits within
    five working days through the SEBI intermediary portal. Failure to
    utilise the allotted overseas limit within the stipulated six-month
    period will necessitate reporting to SEBI within two working days
    post-expiry. In the event of a decision to surrender the allocated
    overseas limit, reporting to SEBI is required within two working
    days of the date of such determination. These disclosure
    requirements are aimed at facilitating the monitoring of
    utilisation of overseas investment limits allotted by SEBI.

  • As outlined in SEBI Circular SEBI/HO/AFD-1/PoD/CIR/P/2022/108
    of 17 August 2022, the requirement to have an Indian connection has
    been removed for AIFs and VCFs making overseas investments. AIFs
    and VCFs are only permitted to invest in investee companies
    overseas which are incorporated in jurisdictions in which the
    securities market regulator is either:

    • a signatory under Appendix A of the International Organization
      of Securities Commission’s (IOSCO) Multilateral Memorandum of
      Understanding (MoU), such as Luxembourg and the Netherlands;
      or

    • a signatory to a bilateral MoU with SEBI, such as the United
      States, Mauritius and Singapore.

Further, to address the impact of the Prevention of Money
Laundering Act, 2002 and the FEMA Regulations on AIFs, and in
alignment with the Financial Action Task Force’s (FATF)
anti-money laundering guidelines, SEBI issued a Master Circular on
Anti-Money Laundering (AML) and Countering the Financing of
Terrorism (CFT) on 15 October 2019, along with subsequent circulars
to ensure adherence to the specified guidelines.

In the event of non-compliance with the AIF Regulations or any
SEBI directions, Section 15EA of the SEBI Act, 1992 provides for
the imposition of penalties of at least INR 100,000, which may
extend to INR 100,000 for each day that the failure persists, with
a maximum penalty of INR 10 million or three times the gains
derived from the failure, whichever is higher. Furthermore, the
SEBI circular of 1 October 2015 prescribes reporting standards for
FDI in AIFs. Failure to adhere to the prescribed reporting norms
for AIFs will entail severe consequences, including a prohibition
on the non-compliant entity from receiving any additional foreign
investment, including indirect foreign investment. Furthermore,
such non-compliance will be considered a contravention of the FEMA,
thereby subjecting the entity to potential penalties and/or the
confiscation of any currency, security or other assets associated
with the contravention.

1.4 Are any bilateral, multilateral or supranational
instruments in effect in your jurisdiction of relevance to
alternative investment funds?

SEBI sought to foster international collaboration by signing a
bilateral MoU on 28 July 2014 with securities market regulators
from 27 member states of the European Union/European Economic Area
(EEA). This MoU is centred on consultation, cooperation and the
exchange of information pertinent to the supervision of AIF
managers. Notably, India has also extended its collaborative
efforts by signing a separate bilateral MoU with Gibraltar on 2
February 2018.

SEBI has bolstered global regulatory partnerships through
multiple MoUs with international counterparts, including IOSCO
multilateral and bilateral MoUs. These collaborations facilitate
cross-border cooperation and information exchange for regulatory
and enforcement purposes. A comprehensive list of SEBI’s MoUs
with securities regulators worldwide can be found at www.sebi.gov.in/department/office-of-international-affairs-36/oia-bilateral.html

This collaborative approach is aligned with global regulatory
efforts, particularly within the framework of IOSCO. Regulatory
bodies worldwide work collectively to enforce laws and regulations
within their jurisdictions, fostering a cohesive regulatory
environment. India, which is a signatory to various bilateral tax
and investment protection treaties, prioritises the resolution of
double taxation issues related to income. This commitment is
especially crucial for cross-border fund structures and
investments, emphasising India’s dedication to facilitating
seamless and compliant cross-border financial activities.

1.5 Which bodies are responsible for regulating alternative
investment funds in your jurisdiction? What powers do they
have?

SEBI is the primary regulator of India’s securities market,
with a mission to:

  • protect investors’ interests; and

  • oversee the development of the market.

SEBI has extensive powers under the SEBI Act and the AIF
Regulations, including the ability to:

  • conduct inspections, searches and seizures;

  • impose penalties; and

  • bar individuals from accessing capital markets.

SEBI also offers non-binding guidance on the interpretation of
the AIF Regulations. In accordance with the SEBI Circular of 21
July 2016 and Rule 9(l)(1) of the Prevention of Money Laundering
(Maintenance of Records) Amendment Rules, 2015, SEBI-registered
intermediaries must conduct the initial know-your-customer (KYC)
process for their clients. This includes in-person verification and
the prompt uploading of investor/client data to both the Central
KYC Records Registry and the KYC Registration Agency system within
10 days of establishing an account-based relationship with an
investor/client.

The RBI, as the central bank, operates under the RBI Act 1934,
as amended from time to time and regulates foreign exchange through
the FEMA Regulations. The RBI’s jurisdiction covers:

  • foreign exchange inflows;

  • downstream investments;

  • sectoral caps;

  • pricing norms; and

  • anti-money laundering.

The RBI compels regulated entities to report suspicious
transactions to the Financial Intelligence Unit – India
(FIU-India).

Additionally, FIU-India, operating under the Department of
Revenue within the Ministry of Finance, functions as the central
national agency tasked with receiving, processing, analysing and
disseminating information pertaining to suspicious financial
transactions.

Further, the income tax authorities oversee the taxation of both
funds and their investors, ensuring compliance through filing
requirements and audits. Under the tax rules, the income tax
authorities are empowered to recover tax either from the trustee or
from the beneficiaries (ie, investors) directly. The trustee has
the option to settle the entire tax liability at the AIF level.
Additionally, the trustee, acting as a representative assessee, has
the authority to recover from investors any taxes paid on their
behalf.

In the IFSC located in GIFT City, funds and FMEs are governed by
the FM Regulations and the guidelines and circulars issued by the
IFSCA. The primary objectives of the IFSCA are to:

  • enhance the ease of conducting business within the IFSC;
    and

  • establish a regulatory framework of global standards.

Beyond overseeing the types of transactions conducted within the
IFSC, the IFSCA is tasked with regulating the operations of
entities engaged in business transactions within the IFSC.

These authorities are proactive regulators that engage with
industry organisations and stakeholders to enhance the regulation
of AIFs. They issue guidance, FAQs and master circulars for
clarity, and often release consultation papers and draft guidelines
to seek feedback before major regulatory changes.

1.6 To what extent do the regulators cooperate with their
counterparts in other jurisdictions?

SEBI has cemented its commitment to international regulatory
cooperation through the signing of diverse agreements. These
include the IOSCO multilateral MoUs, supplemented by the IOSCO
enhanced multilateral MoUs, along with bilateral MoUs. These
agreements collectively aim to elevate cross-border cooperation and
foster seamless information exchange for regulatory and enforcement
purposes.

In addition to these global initiatives, SEBI has fostered
international collaboration by signing a bilateral MoU on 28 July
2014 with securities market regulators from 27 member states of the
European Union/EEA. This MoU is centred on consultation,
cooperation and the exchange of information pertinent to the
supervision of AIF managers. Notably, India has also extended its
collaborative efforts by signing a separate bilateral MoU with
Gibraltar on 2 February 2018.

India has also entered into bilateral tax information exchange
agreements with 21 jurisdictions and is a party to the Multilateral
Convention of Mutual Administrative Assistance in Tax Matters. As
such, it can exchange information with such jurisdictions, subject
to the receipt of valid requests.

Crucially, India’s membership of the FATF underscores its
active role in global efforts to combat money laundering and
terrorist financing. The RBI, in collaboration with the FATF,
engages in collaborative endeavours with fellow member nations.
These include:

  • executing essential measures;

  • conducting assessments; and

  • advocating for the universal acceptance and implementation of
    relevant measures on a global scale.

2 Form and structure

2.1 What types of alternative investment funds are typically
found in your jurisdiction?

The various types of alternative investment funds (AIFs)
commonly encountered in India are described in question 1.2.

2.2 How are these alternative investment funds typically
structured?

In accordance with the SEBI (Alternative Investment Funds)
Regulations, 2012 (‘AIF Regulations’), the Securities and
Exchange Board of India (SEBI) allows the establishment of an AIF
in the form of:

  • a trust;

  • a limited liability partnership (LLP);

  • a company; or

  • a body corporate.

However, trusts are the prevailing choice for AIF structures due
to specific legal, regulatory, tax and commercial
considerations.

Structure:

1420568a.jpg

Structure in the International Financial Services Centre
(IFSC) Gujarat International Finance Tec City:

Inbound investments (AIFs in IFSC)

1420568b.jpg

  • Offshore shares, debt, derivatives, mutual funds etc

  • Securities listed on IFSC exchange

  • Companies in IFSC

  • Indian shares, debt, derivatives, mutual funds etc

  • Indian listed and unlisted companies

  • Units of AIFs, REITs, InvITs

Outbound investments (AIFs in the IFSC):

1420568c.jpg

  • Offshore shares, debt, derivatives, mutual funds etc

  • Foreign Securities listed on IFSC exchange

  • Companies in IFSC

Under Indian law, a trust does not possess a distinct legal
identity and relies on the legal personality of the trustee.
Consequently, the trustee has the legal ownership of the trust
property, while investors are the beneficial interest holders in
the trust. Investment management agreements are formal legal
documents that grant investment managers the authority by trustees
to oversee and manage capital on behalf of investors.

In contrast, LLPs and companies possess separate legal
identities, with investors participating as partners or
shareholders in LLPs and companies registered as AIFs, although
such arrangements are relatively uncommon.

Certain vehicle types – such as family trusts, employee
stock ownership plan trusts, employee welfare trusts, gratuity
trusts and securitisation trusts – are excluded from the
definition of an AIF.

2.3 What are the advantages and disadvantages of these
different types of structures?

Company:











Advantages Disadvantages
It possesses a distinct legal identity and
perpetual continuity.
Establishing a company entails meticulous
planning, paperwork and navigating through various stages before
formal registration.
The liability of shareholders is limited to their
invested capital.
Essential components such as the capital
structure, constitution, and accounts must be made public through
the submission of the necessary documents to the registrar of
companies.
It features the separation of ownership and
management, with the authority vested in the board of
directors.
It is subject to more stringent compliance and
reporting requirements, leading to increased operational costs. It
must also adhere to rigorous accounting and auditing
standards.
It is a legal entity that may sue and be sued in
its own name.
The dissolution process can also be more
time-consuming compared to that for trusts.

LLP:











Advantages Disadvantages
It has a separate legal identity and a perpetual
existence.
Designated partners bear unlimited liability to
ensure partnership compliance with applicable laws; and personal
assets of partners may be attached in case of fraudulent actions
against LLP creditors
Partners enjoy limited liability, which is tied to
their capital contributions.
Some financial institutions may be restricted from
investing in an LLP, limiting capital-raising opportunities.
It is subject to fewer compliance requirements
than a company.
LLPs with foreign partners may face exchange
control limitations on investments in investee companies.
There is no limit on the number of partners,
subject to a 1,000-investor restriction imposed by the AIF
Regulations; and there is no requirement for a trustee in AIF
management.
The establishment and dissolution processes can be
lengthier than those for trusts.

Trust:








Advantages Disadvantages
It is relatively easy to establish and wind up,
providing flexibility in pursuing commercial objectives.
A notable disadvantage is the potential imposition
of tax at the maximum marginal rate if the trust is structured as a
discretionary trust or if the beneficial interests of investors
remain uncertain, as seen in hedge funds, particularly for Category
III AIFs.
It is subject to fewer statutory disclosure
requirements compared to companies or LLPs.

Regulatory compliance under the Trusts Act is
minimal, resulting in management cost savings.

Launching multiple schemes under a single trust
structure offers a flexibility that may not be as feasible for LLPs
and companies.

Each legal structure has its own advantages and disadvantages,
making the choice of structure dependent on specific business needs
and objectives.

2.4 What are the most widely used alternative investment funds
structures used in your jurisdiction?

The trust stands out as the pre-eminent AIF structure, driven by
its alignment with specific legal, regulatory, tax and commercial
considerations.

Of the different categories of AIFs, Category II is favoured due
to its flexibility in structuring investment strategies and its
sector-agnostic nature. This category accommodates the formation of
private equity funds and real estate funds. In India, the Category
II AIF is extensively adopted, given its versatility, enabling
managers to articulate comprehensive investment policies and
objectives for the AIF.

2.5 Is there a preferred alternative fund structure for
particular investment strategies (ie, hedge fund/private
credit/private equity)?

Hedge funds: Hedge funds serve as investment
vehicles that draw in private investors and strategically employ a
diverse array of trading and investment strategies across domestic
and international markets. They actively oversee their portfolios,
utilising both long and short positions in traditional securities,
alongside holdings in listed and unlisted derivatives.

Category III AIFs exhibit versatility by investing across a
spectrum that includes:

  • securities of both listed and unlisted investee companies;

  • derivatives;

  • complex or structured products; and

  • other AIF units.

They can be either open-ended or closed-ended funds, with the
latter adhering to a minimum tenure of three years. They are
preferred investment strategies for hedge funds and private
investment in public equity (PIPE) funds. They employ a wide array
of trading strategies and leverage, encompassing investments in
both listed and unlisted derivatives. Notably, the government
provides no specific incentives or concessions for investments in
these funds. Category III AIF funds, focusing on public equities,
exhibit lower liquidity risk. Conversely, those engaged in real
estate and private equity ventures carry a higher level of
risk.

Private credit and private equity: ‘Private
credit’ refers to a form of debt financing extended by non-bank
lenders or funds that is not publicly issued or traded in open
markets. The private credit market has garnered substantial
attention from both high-net-worth individuals and institutional
investors due to its distinct characteristics and appeal.

Private equity funds serve as investment vehicles created to
aggregate capital from institutional investors and high-net-worth
individuals. These funds leverage the pooled capital to acquire
equity stakes in private companies, strategically aimed at
generating significant returns on investment.

Category II funds are specifically designed for private equity,
private credit and distressed assets funds. An AIF falling under
this category can exclusively invest in securities,
encompassing:

  • non-convertible debentures;

  • convertible cumulative debentures;

  • optionally convertible debentures; or

  • other variations of debt securities.

AIFs, including Category II funds, are constrained to investing
solely in shares and securities, as outlined in Section 2(h) of the
Securities Contracts (Regulations) Act, 1956. An important
restriction for AIFs is the prohibition against providing loans.
However, this restriction does not apply to special situation funds
(SSFs). It is imperative that SSFs adhere to the due diligence
requirements mandated by the Reserve Bank of India for their
investors.

Specifically, a debt fund registered under Category II primarily
focuses on investing in debt or debt securities of both listed and
unlisted investee companies in accordance with its stated
objectives.

2.6 Are alternative investment funds required to have a local
administrator appointed?

In India, the establishment of an investment fund necessitates
mandatory registration as an AIF, unless the fund qualifies for a
specific exemption. SEBI mandates that an AIF must be managed by a
fund manager that is established in India. This regulatory
requirement ensures that AIFs operating in the Indian market are
overseen by managers which are locally based and accountable to the
Indian regulatory authorities.

According to the AIF Regulations, a manager appointed by an AIF
to oversee its investments can be an individual or an entity based
in India. Managers are commonly structured as companies or LLPs.
Investments made by an AIF are categorised as investments by
residents under exchange control norms, contingent upon both the
manager and the sponsor of the AIF being residents owned (with more
than 50% ownership) and controlled. Where either the manager or the
sponsor does not meet the criteria of being resident-owned or
controlled, investments made by the AIF are designated as
‘downstream investments’ or ‘indirect foreign
investments’ by the AIF. In such instances, compliance with the
Foreign Exchange Management Act becomes mandatory.

In the IFSC, fund management entities have the flexibility to
take on various forms, including:

  • companies, trusts, LLPs or branches thereof; or

  • any other form specified by the IFSC Authority.

2.7 Are alternative investment funds required to appoint a
local custodian to hold assets? If yes, what legal protections are
in place to protect the alternative investment fund’s
assets?

In India, AIFs must appoint a custodian for the safekeeping of
their assets, as per the regulatory framework established by SEBI.
The custodian plays a crucial role in ensuring the security and
protection of the AIF’s assets.

The sponsor or manager of the AIF must engage a custodian
registered with SEBI for the safekeeping of securities if the
corpus of the AIF exceeds INR 5 billion. A Category III AIF must
appoint a custodian, irrespective of its corpus size. Additionally,
in the case of Category III funds dealing with commodity
derivatives involving physical settlement, the appointed custodian
is responsible for safeguarding the received securities and
goods.

Furthermore, for Category I and Category II AIFs engaged in
credit default swaps, the sponsor or manager must:

  • appoint a custodian registered with SEBI; and

  • adhere to specific terms and conditions stipulated by
    SEBI.

Further, in recently published consultation paper, SEBI mandated
all AIFs, regardless of corpus, to appoint a custodian.

2.8 Is it possible for an alternative investment fund to
redomicile to your jurisdiction? If yes, what considerations are
required and what are the steps involved?

Regulation 2(1)(q) of the AIF Regulations specifies that a
‘manager’ is an individual or entity appointed by the AIF
to oversee its investments. As per SEBI’s practical
requirements, the investment manager is expected to be an
individual or entity located in India. In situations where foreign
managers seek to establish funds domiciled in India, the investment
manager may take the form of a subsidiary or a distinct entity set
up within India.

Currently, there are no provisions allowing the re-domiciliation
of funds into India. An AIF must be established within India,
taking the form of a trust, a company or an LLP.

3 Authorisation

3.1 Must alternative investment funds be authorised or licensed
in your jurisdiction?

Alternative investment funds (AIFs) must register with the
Securities and Exchange Board of India (SEBI) under the SEBI
(Alternative Investment Funds) Regulations, 2012 (‘AIF
Regulations’), necessitating the submission of a private
placement memorandum (PPM) to SEBI.

Within the International Financial Services Centre (IFSC),
situated in Gujarat International Finance Tec (GIFT) City, India,
funds and entities acting as fund management entities operate under
the regulatory framework established by the International Financial
Services Centres Authority (IFSCA) and must be registered with
IFSCA.

Please see question 3.3 and question 1.1 for more
information.

3.2 If so, what criteria must be satisfied to obtain
authorisation? Do any restrictions apply in this regard?

In deciding whether to grant a certificate and authorisation,
SEBI assesses eligibility based on the following conditions:

  • The applicant’s constitutional documents (memorandum of
    association for a company, trust deed for a trust or partnership
    deed for a limited liability partnership (LLP)) must authorise it
    to operate as an AIF.

  • The applicant must be restricted by its constitutional
    documents from making a public invitation for securities
    subscriptions.

  • In the case of a trust, the trust instrument must be in the
    form of a deed and must have been duly registered under the
    Registration Act, 1908.

  • If the applicant is an LLP, it must be properly incorporated
    and the partnership deed must have been duly filed with the
    registrar of companies under the Limited Liability Partnership Act,
    2008.

  • If the applicant is a body corporate, it must be established
    under central or state laws and must be permitted to engage in AIF
    activities.

  • The applicant, sponsor and manager must be considered fit and
    proper persons based on the criteria specified in Schedule II of
    the SEBI (Intermediaries) Regulations, 2008.

  • The key investment team of the manager must have at least one
    key member of personnel with a relevant certification and another
    with professional qualifications in finance, accountancy, business
    management, commerce, economics, capital market or banking, as
    specified by SEBI.

  • The manager or sponsor must have the necessary infrastructure
    and manpower for effective operations.

  • The applicant must clearly outline the investment objective,
    targeted investors, proposed corpus, investment style or strategy
    and proposed tenure of the fund or scheme at the time of
    registration.

  • Verification must be conducted to ensure that neither the
    applicant nor any entity established by the sponsor or manager has
    previously been refused registration by SEBI.

3.3 What is the process for obtaining authorisation of
alternative investment funds and how long does this usually
take?

SEBI has established a prescribed application form for AIF
registration, which must be accompanied by the AIF’s
foundational documents and the PPM. This submission is facilitated
through a SEBI registered merchant banker. Key parties to the AIF,
such as the manager and sponsor, must provide certain declarations
and undertakings, along with a disciplinary history.

Upon ensuring that the applicant, the AIF manager and the
sponsor meet the eligibility criteria, the next step involves the
submission of an application for the issuance of a certificate
under the designated categories outlined in the AIF Regulations.
This application is facilitated through the completion of Form A,
as delineated in the First Schedule of the AIF Regulations.
Concurrently, the applicant must remit the non-refundable
application and registration fees, the details of which are
stipulated in the Second Schedule of the AIF Regulations.

A registered merchant banker, appointed by the manager, conducts
a thorough vetting of the placement memorandum and declarations. If
deemed adequate, a due diligence certificate is issued by the
merchant banker, stating that the disclosures are sufficient for
submission to SEBI, along with the relevant documents. The merchant
banker is also responsible for incorporating SEBI’s comments
into the placement memorandum. An exemption is granted to
large-value funds for accredited investors, subject to specific
conditions.

The entire application process is conducted online. According to
the AIF Regulations, SEBI is mandated to approve or reject the
application within 30 days. SEBI may request additional information
or documents during this period. Usually, the establishment and
registration process typically takes three to five months,
encompassing the time required for SEBI’s evaluation of the
application. This includes the timeframe for submission of the fund
documentation and AIF application (pre-formation formalities),
which usually takes around a month.

Amount to be paid as fees (as per Second Schedule of AIF
Regulations):

















Application fee INR 100,000
Registration fee for Category I AIFs other than
angel funds
INR 500,000
Registration fee for Category II AIFs other than
angel funds
INR 1 million
Registration fee for Category III AIFs other than
angel funds
INR 1.5 million
Scheme fee for AIFs other than angel funds INR 100,000
Re-registration fee INR 100,000
Registration fee for angel funds INR 200,000
Registration fee for corporate debt market
development funds (specified AIF as provided under Regulation 19 of
these regulations)
INR 500,000

Process flow for setting up an AIF in India as per the
AIF Regulations:

1420568d.jpg

The establishment and registration process with the IFSCA
typically takes two to three months, encompassing the time required
for SEBI to evaluate the application.

Process flow for setting up an AIF in GIFT
City:

1420568e.jpg

4 Management and advisory relationships

4.1 How are alternative investment fund managers and advisers
typically structured in your jurisdiction?

According to the Securities and Exchange Board of India (SEBI)
(Alternative Investment Funds) Regulations, 2012 (‘AIF
Regulations’), a manager appointed by the AIF to oversee its
investments may take the form of either a person or an entity
situated in India. Ordinarily, these managers are established as
companies or limited liability partnerships (LLPs).

The manager of a SEBI-registered AIF must be established in
India. During the certification process, SEBI will evaluate the
professional qualifications and experience of the manager’s key
investment team, who will serve as employees, partners or directors
of the investment manager. The SEBI application necessitates the
investment manager to showcase the essential infrastructure
required for effectively managing AIFs.

Within the International Financial Services Centre (IFSC), fund
management entities (FMEs) have the flexibility to adopt various
structures, such as a company, an LLP or a branch thereof.
Alternatively, they can choose any other form as specified by the
International Financial Services Centres Authority (IFSCA).

In the case of AIFs within the IFSC, FMEs can also be
established as a branch of an entity already registered or
regulated by a financial sector regulator in India or a counterpart
in a foreign jurisdiction that engages in similar activities. This
setup, whether a branch or a new legal entity, must possess
adequate infrastructure – including office space, equipment,
communication facilities and manpower – commensurate with the
scale of its operations in the IFSC. Additionally, if an FME opts
to establish a branch in the IFSC, the branch operations must be
segregated from those of the registered entity outside the IFSC.
The IFSCA (Fund Management) Regulations, 2022 (‘FM
Regulations’) also require the FME to have a principal officer
and additional key management personnel in the IFSC, depending on
the category of FME.

4.2 What are the advantages and disadvantages of these
different types of structures?

For a thorough exploration of the pros and cons related to
various structural choices, please see question 2.3. Additionally,
question 8.2 offers valuable insights into the tax considerations
relevant to AIF managers and investment advisers.

4.3 Must alternative investment fund managers be authorised or
licensed in your jurisdiction?

Investment managers of AIFs need not register separately with
SEBI in order to manage the AIF. Regulation is directed at the fund
rather than the manager, and the manager is automatically
registered when the fund completes its registration process.
However, anyone offering investment advice for remuneration to
clients or other entities must be registered with SEBI as an
investment adviser under the SEBI (Investment Adviser) Regulations,
2013.

Additionally, in the case of an FME in the IFSC, located in
Gujarat International Finance Tec (GIFT) City, authorisation from
the IFSCA is required to engage in such activities.

4.4 If so, what criteria must be satisfied to obtain
authorisation? Do any restrictions apply in this regard?

Requirements in India:

  • The AIF manager must be based in India, with key investment
    team members being employees, partners or directors of the
    manager.

  • SEBI will assess the professional qualifications and experience
    of the investment team during the registration process.

  • At least one key team member must have a professional
    qualification in finance, accountancy, business management,
    commerce, economics, capital markets or banking from a university
    or institution recognised by the central government, a state
    government or a foreign university. Alternatively, a charter from
    the CFA Institute or any other qualification specified by SEBI will
    be accepted.

  • At least one key team member must hold certifications as
    specified by the SEBI periodically.

  • The manager or sponsor must have the necessary infrastructure
    and manpower to effectively discharge its activities.

Requirements in GIFT City:

  • Infrastructure:

    • FMEs in the IFSC can be established as a branch or a new
      entity.

    • An FME’s infrastructure – including office space,
      equipment, communication facilities and manpower – must be
      proportionate to its operations. The office should be dedicated,
      secured and accessible only by authorised person(s) of the
      FME.

    • For a branch set-up, there must be effective ringfencing of
      operations from the registered entity outside the IFSC.


  • Key personnel requirements:

    • The FM Regulations mandate a principal officer and additional
      key management personnel in the IFSC, depending on the category of
      FME.


  • Net worth requirements:

    • Authorised FMEs: $75,000.

    • Registered FMEs (non-retail): $500,000.

    • Registered FME (retail): $1 million.


  • Applicant and key individual requirements:

    • The applicant, principal officer, directors/partners/designated
      partners, key managerial personnel and controlling shareholders
      must be fit and proper individuals at all times. A person is deemed
      ‘fit and proper’ if they have a record of fairness and
      integrity, including financial integrity, good reputation,
      character and honesty.

    • Disqualifications would include:

      • convictions for moral turpitude, economic offences or
        securities law violations;

      • pending recovery proceedings or winding-up orders;

      • insolvency, unreleased discharge or unsoundness of mind;

      • orders restraining financial product dealings within the last
        three years;

      • any adverse regulatory orders within the last three years;

      • financial unsoundness, wilful defaulter status or fugitive
        economic offender declaration; and

      • any other disqualification specified by the authority.

4.5 What is the process for obtaining authorisation and how
long does this usually take?

AIF managers: As detailed in question 4.3,
there is no requirement for a manager to seek a separate
registration or licence for managing AIFs other than approvals as
mentioned in the SEBI (Investment Adviser) Regulations, 2013.

FMEs in GIFT City:

  • The IFSC in GIFT City operates as a special economic zone
    (SEZ), necessitating approval from SEZ authorities for each
    ‘unit’, including funds and FMEs.

  • To register as an FME, an application must be submitted to the
    IFSCA in the prescribed format.

  • Upon receiving registration, the FME can proceed to launch its
    scheme by submitting the private placement memorandum (PPM) to the
    IFSCA in advance.

  • The setup and registration process with the IFSCA typically
    takes around two to three months.

4.6 What other requirements or restrictions apply to
alternative investment fund managers and advisers in your
jurisdiction?

The following additional requirements/restrictions/obligations
apply to AIF managers:

  • The AIF, key management personnel, trustee, trustee company,
    directors of the trustee company, designated partners or directors
    of the AIF, managers and their key management personnel must adhere
    to the specified Code of Conduct outlined in the Fourth Schedule of
    the SEBI (Alternative Investment Funds) Regulations, 2012 (‘AIF
    Regulations’).

  • The manager and either the trustee, the trustee company, the
    board of directors or the designated partners of the AIF are
    collectively responsible for ensuring compliance with the Code of
    Conduct specified in the Fourth Schedule of the AIF
    Regulations.

  • The manager is accountable for every decision of the AIF,
    ensuring compliance with:

    • regulations;

    • the terms of the placement memorandum;

    • agreements with investors;

    • the fund documents; and

    • the applicable laws.


  • The manager is responsible for ensuring that AIF decisions
    comply with established policies and procedures, as well as other
    internal policies, subject to conditions specified by SEBI.

  • The manager may form an investment committee (by any name) to
    approve AIF decisions, subject to conditions specified by
    SEBI.

  • If the corpus of the AIF exceeds INR 5 billion, the sponsor or
    manager must appoint a custodian registered with the SEBI for
    safeguarding securities.

  • The manager is prohibited from providing advisory services to
    any investor other than the clients of a co-investment portfolio
    manager, as specified in the SEBI (Portfolio Managers) Regulations,
    2020, for investments in securities of investee companies where the
    AIF managed by it makes investments.

  • The manager, trustee, trustee company, board of directors or
    designated partners must ensure the segregation and ring-fencing of
    assets and liabilities of each scheme of an AIF. This extends to
    segregating and ring-fencing bank accounts and securities accounts
    for each scheme.

  • The manager must appoint a compliance officer responsible for
    monitoring compliance with the provisions of the act, rules,
    regulations, notifications, circulars, guidelines, instructions and
    any other directives issued by the SEBI.

4.7 Can an alternative investment fund manager impose
restrictions on the issue, redemption or transfer of interests in
the funds under management?

An AIF manager has the authority to impose limitations on the
issuance, redemption or transfer of interests concerning the AIFs
under its management.

Investors/contributors are not permitted to solicit or
transfer/pledge any of their units, capital commitment, interests,
rights or obligation with regard to the AIF without the prior
written consent of the investment manager, which may be denied by
the investment manager. The transfer is subject to the following
requirements:

  • The proposed transferee/pledgee is an eligible person;

  • The proposed transfer/pledge will be subject to the execution
    of necessary documentation by the transferee/pledgee and the
    transferor/pledgor, as may be stipulated/prescribed/required by the
    investment manager; and

  • The proposed transfer/pledge will not contravene any applicable
    law or policy of the government or otherwise is not prejudicial to
    the interests of the trust/fund. In the event of the transfer of
    units by a contributor, the new contributor will execute a deed of
    adherence acknowledging that it will be bound by the terms and
    conditions of the trust documents, in accordance with the form
    specified in the contribution agreement.

Conditions for redemption:

  • Closed-ended AIFs: Closed-ended AIFs have the authority to
    limit transfers or redemptions of investor interests at the
    discretion of their investment managers. Closed-ended AIFs are not
    allowed to provide priority exit rights to investors.

  • Open-ended funds: For open-ended funds, the circumstances under
    which a manager can restrict redemptions are subject to detailed
    disclosures in the PPM or as required by law. The suspension of
    redemptions is permissible only under exceptional circumstances,
    serving the best interests of the AIF investors. During the
    suspension period, new subscriptions cannot be accepted by the
    manager. Any suspension of redemptions for open-ended schemes must
    be promptly reported to SEBI.

Post the redemption of units and payment of consideration, the
contributor will cease to be entitled to any rights in respect
thereof and accordingly its name will be removed from the list of
contributors with respect to such units. Units that are not
redeemed by the AIF will be redeemed as per the applicable laws
after the term comes to an end.

4.8 Are there any requirements regarding the ownership of
alternative investment fund managers? If so, please provide
details.

The investment manager of an AIF is acknowledged as a regulated
entity according to the AIF Regulations. By virtue of this
recognition, an AIF manager is eligible to receive up to 100%
foreign investment through the automatic route, circumventing the
need for government approval, unless the manager has engaged in
other unregulated financial services activities.

The AIF Regulations do not prescribe a maximum limit for
investments by the fund manager or sponsor. However, through its
informal guidance, SEBI has emphasised that the quantum of
investment by the fund manager or sponsor should align with the
continuing interest obligations applicable to the AIF, ensuring
coherence and compliance with regulatory requirements.

Category I and II AIFs: The manager of a
SEBI-registered AIF must be established in India. The manager or
sponsor of the AIF must maintain a continuing interest in the AIF,
constituting a minimum of 2.5% of the corpus or INR 50 million,
whichever is lower. This interest must take the form of a direct
investment in the AIF and should not be facilitated through the
waiver of management fees.

Category III AIFs: For Category III AIFs, the
stipulated continuing interest is higher, set at a minimum of 5% of
the corpus or INR 100 million, whichever is lower.

Moreover, the manager or sponsor must transparently disclose its
investment in the AIFs to investors. This disclosure ensures
clarity and openness regarding the financial involvement of the
manager or sponsor in the AIF, fostering trust and transparency
within the investment framework.

Angel funds: The manager or sponsor must
maintain a consistent stake in the angel fund of at least 2.5% of
the corpus or INR 5 million, whichever is lower. Importantly, this
continuing interest must not be achieved through the waiver of
management fees.

Corporate debt market development funds: The
manager or sponsor must maintain a continuing interest in the fund
amounting to no less than INR 50 million. This commitment must be
in the form of a direct investment in the fund and should not be
fulfilled through the waiver of management fees.

Change in control: SEBI typically asks AIF
managers during the application stage to provide information on the
shareholding or partnership interest of the manager entity.
Regulation 20(13) of the AIF Regulations stipulates that any change
in control of the manager or sponsor requires notification with and
approval by SEBI. SEBI may impose fees and set other conditions,
with which the AIF must comply. SEBI has issued the following
circulars providing guidance on the process and fee payment
requirements of change in control:

  • SEBI Circular SEBI/HO/AFD-1/PoD/P/CIR/2022/155 of 17 November
    2022 provides as follows in relation to the fee for a change in
    control of manager/sponsor or a change in manager/sponsor of an
    AIF:

    • A fee, equivalent to the AIF’s registration fee, is applied
      for changes in control or management.

    • The fee must be paid by the manager or sponsor within 15 days
      and cannot be passed on to investors.

    • If both the manager and sponsor change simultaneously, only a
      single registration fee is charged.

    • No fee is charged in specific scenarios, such as where the
      manager is taking control by replacing the sponsor or where
      sponsors are exiting in AIFs with multiple sponsors.

    • Prior approval given by SEBI is valid for six months from the
      approval date.


  • According to SEBI Circular CIR/IMD/DF/14/2014 of 19 June 2014,
    read with SEBI Circular CIR/IMD/DF/16/2014 of 18 July 2014, the
    following process must be followed by AIFs in case of a change in
    control:

    • Existing unit holders that do not wish to continue after the
      change should be given an exit option. They must be given at least
      one month to express their dissent.

    • For open-ended schemes, two exit options are available:

      • buying out units from dissenting investors at market price;
        or

      • redeeming units by selling underlying assets.


    • For closed-ended schemes, the exit option involves buying out
      units from dissenting investors. Prior to this, the units’
      valuation is determined by two independent valuers and the exit is
      at a value not less than the average of the two valuations. The
      entire process, from the last date of the offer for dissent, should
      be completed within three months.


  • SEBI Circular SEBI/HO/IMD-1/ DF9/CIR/2022/032 of 23 March 2022
    has streamlined the process for approving changes in the control of
    the sponsor and/or manager of an AIF involving a scheme of
    arrangement under the Companies Act, 2013. The key points are
    follows:

    • Applications for the change in control must be submitted to
      SEBI before filing with the National Company Law Tribunal
      (NCLT).

    • Upon ensuring compliance with the regulatory requirements, SEBI
      will grant in-principle approval.

    • The in-principle approval is valid for three months from the
      date of issuance. During this period, the applicant must apply to
      the NCLT.

    • Within 15 days of the NCLT order, the applicant must
      submit:

      • an application for final approval;

      • a copy of the NCLT order approving the scheme;

      • a copy of the approved scheme;

      • a statement explaining any modifications and reasons; and

      • details of compliance with SEBI’s in-principle approval
        conditions.

4.9 Can alternative investment fund managers delegate to
third-party investment managers or investment advisers? If yes,
please provide details of any specific requirements.

The manager has the option to establish an investment committee,
subject to conditions set by the SEBI. Members of the investment
committee must ensure that their decisions align with specified
policies. However, this provision does not apply to an AIF where
each investor, excluding certain individuals affiliated with the
fund:

  • has committed to investing at least INR 700 million; and

  • has provided a waiver regarding compliance with this
    regulation, as specified by SEBI.

Further, managers are bound by the SEBI Guidelines
CIR/MIRSD/24/2011 on Outsourcing of Activities of 15 December 2011.
SEBI’s outsourcing principles emphasise adherence to regulatory
guidelines, such as the following:

  • The manager must conduct thorough due diligence when selecting
    and monitoring third-party services.

  • A comprehensive policy must be in place to guide outsourcing
    activities.

  • A risk management programme must be established.

  • Outsourcing must not compromise obligations to customers and
    regulators.

  • All outsourcing relationships must be governed by written
    contracts outlining rights, responsibilities and expectations.

  • Additionally, steps must be taken to ensure the protection of
    confidential information from unauthorised disclosure.

The outsourcing of core business activities and compliance
functions is prohibited.

4.10 Can alternative investment fund manager provide investment
management services to clients other than alternative investment
funds? If yes, do any additional requirements apply?

Managers can extend their investment management services beyond
AIFs. However, in doing so, they must:

  • provide the relevant services;

  • meet licensing requirements; and

  • serve an appropriate clientele.

Importantly, these extended services must not conflict with the
regulations governing AIFs. Top of Form

They can engage in the following activities:

  • They can provide portfolio management services to designated
    mandate accounts by obtaining registration under the SEBI
    (Portfolio Managers) Regulations, 1993.

  • They can also cater to retail funds in accordance with the SEBI
    (Mutual Funds) Regulations, 1996.

  • Where resident Indian clients are advised, the manager must
    secure registration under the SEBI (Investment Adviser)
    Regulations, 2013.

The manager is restricted from offering advisory services to any
investor except the clients of the co-investment portfolio manager,
as outlined in the SEBI (Portfolio Managers) Regulations, 2020.
This restriction specifically applies to investments in securities
of investee companies where the AIF managed by the manager is
making an investment.

To comply with SEBI regulations, managers must meet some
requirements, which are outlined in questions 4.4 and 4.6.

5 Marketing

5.1 Is the marketing of alternative investment funds subject to
authorisation in your jurisdiction?

The Securities and Exchange Board of India (SEBI) (Alternative
Investment Funds) Regulations, 2012 (‘AIF Regulations’) and
the International Financial Services Centres Authority (IFSCA)
(Fund Management) Regulations, 2022 (‘FM Regulations’)
stipulate that AIFs can raise funds through private placement,
facilitated by the issuance of a private placement memorandum
(PPM). These regulations provide detailed guidelines on the
specific information required to be disclosed within the PPM. Given
the confidential nature of PPMs, they cannot be marketed directly.
Instead, only a concise summary document is shared and discussed.
Distributors exclusively engage with clients, while the fund pitch
and detailed explanations are conducted by the fund management
team, ensuring adherence to confidentiality and regulatory
protocols.

SEBI Circular SEBI/HO/AFD/PoD/CIR/2023/054 of 10 April 2023
grants AIF managers the authorisation to engage potential investors
through SEBI-registered intermediaries such as independent advisers
and portfolio managers. In this circular, SEBI clarified that
investors onboarded in the AIF through registered intermediaries
would participate via a ‘direct plan’ and should not be
subject to any placement fee by the AIF, as these investors are
already being charged by the registered intermediaries.

Conversely, managers also have the option to approach potential
investors through distributors, constituting an ‘indirect
plan’. For Category I and II AIFs, up to one-third of the total
distribution fee/placement fee may be paid to distributors upfront,
with the remaining fee disbursed on an equal trilateral basis over
the fund’s tenure. In the case of Category III AIFs, any
distribution fee/placement fee is to be charged to investors solely
on an equal trilateral basis. Notably, no upfront distribution
fee/placement fee should be directly or indirectly charged by
Category III AIFs to their investors.

Marketing AIFs through a PPM necessitates registration and
approval from the local regulator, SEBI. In the context of a fund
in the International Financial Services Centre (IFSC) at Gujarat
International Finance Tec City, the fund management entity (FME)
must proactively submit the PPM to the IFSCA for advance review.
Notably, for venture capital schemes in the IFSC, the filing of
scheme documents follows a streamlined process, known as the
‘green channel’, allowing schemes to be immediately opened
for subscription by investors upon filing with the IFSCA.

5.2 If so, what criteria must be satisfied to obtain
authorisation? Do any restrictions apply in this regard?

The PPM serves as the pivotal legal marketing document for an
AIF, encompassing comprehensive material information. Regulation 11
of the SEBI (Alternative Investment Funds) Regulations, 2012
(‘AIF Regulations’) stipulates that the PPM must encompass
essential details, including information about:

  • the AIF;

  • its manager;

  • the key investment team;

  • the sponsor;

  • the fund’s investment objective, strategy and process;

  • the target investors;

  • the corpus;

  • associated fees and expenses;

  • the fund’s leverage approach; and

  • restrictions on redemptions, transfers and withdrawals.

The PPM should also address:

  • potential conflicts of interest;

  • risk factors; and

  • the disciplinary history of involved parties.

In cases where the AIF discloses a manager’s track record, a
benchmarking report is required. SEBI has prescribed a standardised
PPM format for most AIFs, exempting angel funds and those with each
investor committing a minimum capital contribution of INR 700
million.

For IFSC funds, the PPM must outline:

  • the investment objective;

  • the target investors;

  • the proposed corpus;

  • the investment style;

  • the methodology;

  • tenure;

  • fees;

  • risk management practices;

  • leverage calculation; and

  • key management personnel.

It should also include relevant information about the FME and
the scheme.

5.3 What is the process for obtaining authorisation and how
long does this usually take?

See question 5.1 for additional context on this query.
Typically, the documentation process for marketing and the AIF
application takes two to three weeks. Conversely, the vetting and
approval of the application, along with associated documentation by
SEBI, typically takes around two months.

5.4 To whom can alternative investment funds be marketed?

AIFs are designed for private placement and can be marketed
exclusively to a select group of sophisticated and private
investors, encompassing:

  • funds of funds;

  • government institutions;

  • corporations;

  • public sector undertakings;

  • private banks;

  • insurance companies;

  • eligible pension funds;

  • global development financial institutions;

  • multilateral organisations; and

  • high-net-worth individuals.

Indian entities such as banks, insurance companies and pension
funds are subject to sectoral regulators’ specific investment
restrictions in AIF units. Therefore, their investments must adhere
to these sectoral regulations in addition to compliance with the
AIF Regulations.

AIFs have the flexibility to attract investments from retail
investors, including high-net-worth individuals, with minimum
ticket sizes specified by the AIF Regulations or the FM
Regulations. For SEBI-registered AIFs, the standard minimum ticket
size is INR 10 million, although angel funds and special situation
funds have reduced requirements of INR 2.5 million and INR 100
million respectively. Exceptions to the minimum ticket size are
granted for:

  • accredited investors;

  • deemed accredited investors; and

  • employees, directors and partners of the investment
    manager.

SEBI has introduced the notion of an ‘accredited
investor’ in India. This accreditation is primarily determined
by:

  • net-worth criteria; and

  • endorsement from an accreditation agency.

Accredited investors are expected to be well informed and well
advised on investment matters. Consequently, regulatory relaxations
have been instituted to facilitate the involvement of accredited
investors and the pooling of such investors in large-value
funds.

For IFSC funds, the minimum ticket size is $150,000, with
similar exemptions for:

  • accredited investors;

  • deemed accredited investors; and

  • employees, directors and partners of the investment
    manager.

5.5 What are the content criteria that marketing materials for
alternative investment funds must satisfy?

Marketing materials for AIFs must adhere to the specified
requirements outlined in the AIF Regulations. The PPM must
encompass comprehensive information about both the AIF and the AIF
manager, with further details provided in question 5.2.

5.6 What other requirements or restrictions apply to marketing
materials for alternative investment funds?

The AIF Regulations strictly limit the marketing of AIFs to
private placement through the issuance of a PPM. Public advertising
for investment by the manager is not permitted.

AIFs are marketed through private placement, involving the
issuance of a PPM to individuals or entities both within and
outside India. However, no AIF can have more than 1,000
investors.

If an AIF is established as a company, it must adhere to the
private placement procedures outlined in the Companies Act,
2013.

To understand the direct and indirect plan of SEBI, please see
question 3.1.

5.7 Can alternative fund managers from other jurisdictions
market alternative investment funds in your jurisdiction without
authorisation?

An AIF is restricted from making a public offer or extending
invitations to the general public for the subscription of its
units. Instead, it is exclusively authorised to raise funds through
private placement, targeting sophisticated investors.

For resident Indians, offshore investments are subject to
adherence with:

  • the conditions outlined in the Foreign Exchange Management
    (Non-debt Instruments) Rules, 2019; and

  • the Liberalised Remittance Scheme of the Reserve Bank of
    India.

The marketing offshore funds in India must be approached with
caution; and if the offer meets the criteria for a public offering
under Indian law, registration of the offering document is
obligatory.

5.8 Is the appointment of local marketing entities required in
your jurisdiction?

Individuals offering ‘investment advice’ to resident
Indians must obtain registration in accordance with the SEBI
(Investment Adviser) Regulations, 2013. Thus, local marketing
entities may be appointed subject to a condition that they are
regulated by SEBI. Offering marketing through unregulated entities
is not permitted. Therefore, the promotion of offshore funds to
Indian residents should be structured with legal counsel.

5.9 Is it possible to market alternative investment funds to
retail investors in your jurisdiction? If so, are there specific
requirements?

Please see question 5.4.

6 Investment process

6.1 Do any investment or borrowing restrictions apply to the
portfolios of alternative investment funds?

Alternative investment funds (AIFs) are limited to investing
solely in shares and securities as defined under Section 2(h) of
the Securities Contracts (Regulations) Act, 1956. AIFs are not
permitted to extend loans. However, this prohibition does not apply
to special situation funds (SSFs), which are allowed to obtain
‘stressed loans’ according to Clause 58 of the Master
Direction – Reserve Bank of India (Transfer of Loan
Exposures) Directions, 2021 (upon their inclusion in the Annex of
the Master Direction). These SSFs must adhere to the due diligence
requirements for their investors mandated by the Reserve Bank of
India.

In the International Financial Services Centre (IFSC),
closed-ended schemes of restricted (non-retail) funds and family
investment funds may venture into physical assets such as real
estate, bullion, art and other physical assets specified by the
IFSC Authority (IFSCA). Nevertheless, investments by an IFSC fund
in India are subject to the conditions applicable to foreign
investments in India. Depending on the nature of the investment and
the investment strategy, this could affect the nature of
instruments/securities in which investments may be made and
regulatory approvals may be required for certain investments.

The conditions applicable to Category I and II AIFs are as
follows:

  • There is a maximum investment of 25% of investable funds in one
    portfolio company. As per the SEBI (Alternative Investment Funds)
    Regulations, 2012 (‘AIF Regulations’), ‘investable
    funds’ are defined as “the corpus of the scheme of
    Alternative Investment Fund net of expenditure for administration
    and management of the fund estimated for the tenure of the
    fund”.

  • Large-value funds (LVFs) in Categories I and
    II can invest up to 50% of their investable funds in one portfolio
    company.

  • Category I AIFs may have additional restrictions based on
    sub-category – for example, infrastructure funds must invest
    at least 75% in infrastructure projects.

The conditions applicable to Category III AIFs are as
follows:

  • A maximum of 10% of their investable funds may be invested in
    one portfolio company. However, in case of listed equity, the 10%
    limit applies to either the investable funds or the net asset value
    (NAV) of the scheme.

  • LVFs in Category III can invest up to 20% of their investable
    funds in one portfolio company. However, in case of listed equity,
    the 20% limit applies similarly to either the investable funds or
    the NAV.

The conditions applicable to FMEs in the IFSC are as
follows:

  • FMEs are restricted from investing more than 10% of the
    scheme’s corpus. In the case of restricted, open-ended schemes,
    the upper limit for investments in the securities of unlisted
    companies is 25% of the scheme’s corpus.

  • Any substantial deviation from the fund strategy may be
    implemented, contingent upon obtaining consent from at least
    two-thirds of the investors by value.

Borrowings: Category I and II AIFs are
restricted from borrowing funds directly or indirectly, and from
engaging in any form of leverage, except to fulfil temporary
funding needs for a maximum of 30 days, on up to four occasions per
year, and not exceeding 10% of the investable funds.

In contrast, Category III AIFs have the flexibility to employ
leverage or borrowings, contingent upon investor consent and
subject to a maximum limit defined by the Securities and Exchange
Board of India (SEBI), which currently stands at twice the NAV.
Adequate disclosures are essential for both investors and SEBI.

SEBI Order QJA/KS/AFD-1/AFD-1-SEC/27020/2023-24 of 31 May 2023
pertains to Category I AIFs – specifically infrastructure
funds – and provides that the pledging the securities of
portfolio entities to raise capital at the portfolio entity level
goes against the AIF Regulations.

Under the IFSCA (Fund Management) Regulations, 2022, there are
no borrowing or leverage limitations, as long as the private
placement memorandum includes appropriate disclosures. Furthermore,
the respective FME must establish a robust risk management
framework aligned with the scheme’s complexity and risk
profile.

6.2 Are there any specific legal or regulatory requirements
regarding investments in particular assets?

The AIF Regulations mandate specific portfolio composition
requirements for different categories and sub-categories of
AIFs.

For Category I AIFs, the requirements are as follows:

  • Venture capital funds must invest at least two-thirds of their
    investible funds in unlisted equity shares or equity-linked
    instruments of venture capital undertakings or companies listed or
    proposed to be listed on small and medium-sized enterprise (SME)
    exchanges. Additionally, up to one-third of their investible funds
    can be invested in initial public offerings of venture capital
    undertakings, debt instruments, preferential allotment of equity,
    or equity-linked instruments of financially weak companies and
    special purpose vehicles created for investment purposes.

  • SME funds must allocate a minimum of 75% of their investible
    funds to unlisted securities, partnership interests of venture
    capital undertakings, or investee companies that are SMEs or listed
    on SME exchanges.

  • Social venture funds should invest a minimum of 75% of their
    investible funds in unlisted securities or partnership interests of
    social ventures.

  • Infrastructure funds must invest at least 75% of their
    investible funds in unlisted securities, partnership interests of
    venture capital undertakings, investee companies or special purpose
    vehicles involved in infrastructure projects.

Category II AIFs must commit at least 50% of their investible
funds to unlisted investee companies.

Category III AIFs have no specific portfolio allocation
restrictions, except for the general diversification requirement,
enabling them to:

  • invest in:

    • listed or unlisted investee companies;

    • derivatives; and

    • complex products; and


  • engage in commodity derivatives with physical settlement.

Funds of funds, which invest in units of other AIFs, are
categorised as Category I, II or III. They can invest in a manner
corresponding to their category within the AIF framework, with no
allowance for investing in other funds of funds AIFs.

7 Reporting, governance and risk management

7.1 What key disclosure requirements apply to alternative
investment funds in your jurisdiction?

A private placement memorandum (PPMs) must include comprehensive
information on the alternative investment fund (AIF). This includes
crucial details such as:

  • the background of the key investment team of the manager;

  • the identified target investors;

  • the specified tenure of the AIF or scheme;

  • the outlined investment strategy; and

  • the employed risk management tools.

The Securities and Exchange Board of India (SEBI) (Alternative
Investment Funds) Regulations, 2012 (‘AIF Regulations’) do
not impose legislative requirements concerning the disclosure of
information by AIFs related to environmental, social and governance
(ESG) factors. Nevertheless, funds have the flexibility to
incorporate ESG considerations as an investment strategy,
leveraging them to attract capital from investors that align with
such principles.

In contrast, the International Financial Services Centres
Authority (IFSCA) (Fund Management) Regulations, 2022 (‘FM
Regulations’) establish an ESG framework for fund management
entities (FMEs). FMEs managing assets exceeding $3 billion
must:

  • comply with sustainability-related requirements; and

  • establish pertinent policies on governance and
    sustainability.

The AIF Regulations stipulate various disclosure requirements
that AIFs must fulfil periodically. These encompass:

  • financial, risk management, operational, portfolio and
    transactional information; and

  • details about regulatory inquiries or legal actions in any
    jurisdiction.

Additionally, AIFs categorised as either Category I or Category
II must annually furnish financial specifics of their portfolio
companies and information concerning significant risks and
corresponding mitigation strategies. For Category III AIFs, these
reports must be submitted on a quarterly basis within 60 days of
the quarter’s end. SEBI retains the authority to request any
necessary clarification or information from the investment manager,
with compliance expected within the specified timeframe.

Please see the disclosures mandated for AIFs in the PPM,
detailed in question 5.2, for specific information.

7.2 What key reporting requirements apply to alternative
investment funds in your jurisdiction?

Know-your-customer (KYC)
requirements:
As per the SEBI Circular of 21 July 2016,
coupled with Rule 9(l)(1) of the Prevention of Money Laundering
(Maintenance of Records) Amendment Rules, 2015, SEBI-registered
intermediaries must conduct the initial KYC process for their
clients. This involves in-person verification and the timely
uploading of investor/client data to both the Central KYC Records
Registry and the KYC Registration Agency systems within 10 days of
establishing an account-based relationship with an
investor/client.

During the application stage, AIF managers are frequently
required by SEBI to disclose the shareholding/partnership interest
of the manager entity. Any change of control within the
manager/sponsor necessitates notification and approval processes,
involving both investors and SEBI.

Reporting requirements: AIFs must submit
reports to SEBI on a quarterly and annual basis. Managers must also
furnish information and reports to SEBI, as requested periodically,
within the stipulated deadlines. Category III AIFs specifically
must submit quarterly reports on the leverage undertaken.

In addition to regulatory reporting, AIFs must deliver annual
reports to investors, encompassing financial information and
pertinent risks. Notably, investors often include contractual
provisions requiring managers to furnish additional information
regarding the fund and its portfolio entities.

Additionally, the manager must generate a compliance test report
and promptly submit it to the relevant entities based on the
AIF’s structure. In the case of an AIF established as a trust,
the report must be submitted to both the trustee and the sponsor.
For other AIF structures, the CTR is to be submitted directly to
the sponsor.

New reporting guidelines: The AIF Regulations
and the SEBI Master Circular for AIFs of 31 July 2023 mandate the
submission of quarterly reports by AIFs to SEBI. These reports play
a crucial role in the monitoring and regulation of AIFs’
activities.

In a collaborative effort with industry associations such as the
Indian Venture and Alternate Capital Association and Equalifi, SEBI
has introduced a revised reporting format. This initiative aims to
standardise the compliance standards and simplify reporting
processes for AIFs.

7.3 What key governance requirements apply to alternative
investment funds in your jurisdiction?

The AIF Regulations establish a comprehensive organisational
framework to ensure the effective governance of AIFs. This
framework defines the roles, responsibilities and liabilities of
key entities, including the sponsor, manager, trustee and, where
applicable, the decision-making investment committee. The AIF
Regulations institute a fiduciary duty for AIF managers and
sponsors, emphasising the prioritisation of investor interests.
Mandated disclosure of conflicts of interest to investors is a key
requirement, with AIF managers responsible for implementing
policies to identify, monitor and mitigate such conflicts. The
signing and recording of the PPM are central processes to fund
management, involving comprehensive review, approval and subsequent
signatures by relevant stakeholders including trustees and
sponsors.

The key entities for ensuring good governance include the
following:

  • The trustee assumes the overarching role in administering the
    AIF (structured as a trust). Serving as the legal owner of the
    trust, the trustee plays a pivotal role in the fund’s
    governance. The trustee, in turn, engages an investment manager and
    effectively transfers its authorities outlined in the indenture
    through a formal investment management agreement.

  • The investment manager oversees asset allocation, portfolio
    diversification and market analysis for informed investment
    decision making, optimising the AIF’s performance.
    Additionally, the investment manager engages third-party service
    providers such as auditors, custodians, merchant bankers,
    accountants and administrators for efficient fund management.

  • The sponsor is obliged to make a sponsor commitment to the AIF,
    underscoring a genuine ‘skin-in-the-game’ approach. In
    adherence to the AIF Regulations, the sponsor is expressly barred
    from fulfilling its commitment by waiving management fees. This
    prohibition safeguards the integrity of the sponsor’s financial
    contribution to the fund.

  • Custodians play a vital role in independently monitoring AIF
    investments and ensuring their secure safekeeping. Category I and
    II AIFs with a corpus under INR 5 billion are exempt from the
    requirement to appoint a custodian registered with SEBI, provided
    they are not involved in transactions related to credit default
    swaps.

  • The compliance officer is mandated to ensure strict adherence
    to the AIF Regulations. It is incumbent upon him or her to promptly
    and independently report any observed non-compliance. This
    reporting must be executed within a stipulated timeframe of seven
    working days from the date of detection of the compliance
    deviation.

  • Legal advisers ensure regulatory compliance by staying updated
    on evolving frameworks and guiding AIFs through the registration
    process. They provide counsel on fund structuring, investment
    agreements and risk mitigation, drafting comprehensive legal
    documents and conducting due diligence on potential
    investments.

  • Tax advisers play a crucial role in guiding fund managers in
    optimising tax efficiency by offering insights into the tax
    implications of various structures, jurisdictions and investment
    strategies. They assist with:

    • compliance with tax laws and reporting requirements; and

    • adaptation to changes in tax codes.

In the pursuit of robust governance practices, a series of
initiatives have been implemented, including the following:

  • Disclosure and reporting requirements: The AIF Regulations
    stipulate essential disclosure obligations for AIFs in relation to
    investors, covering financial, risk management, operational,
    portfolio and transactional details. These include a requirement to
    report on regulatory inquiries, legal actions and material
    liabilities as they arise during the AIF’s tenure. Category I
    and II AIFs must annually furnish financial specifics of portfolio
    companies and material risks, with Category III AIFs providing
    quarterly reports within 60 days of quarter-end. Additionally, SEBI
    has the authority to seek clarifications or information from the
    investment manager, ensuring timely and transparent
    compliance.

  • Valuation: SEBI recently amended the AIF Regulations to require
    the valuation of AIF securities to adhere to either:

    • the SEBI (Mutual Fund) Regulations, 1996; or

    • valuation guidelines sanctioned by any AIF industry
      association.


  • The valuation process must be conducted
    by an independent valuer that meets SEBI standards. The investment
    manager is responsible for ensuring the accurate and unbiased
    valuation of the AIF’s portfolio, enhancing transparency and
    regulatory compliance.

  • Execution of the contributory agreement: The contributory
    agreement provides a clear and legally binding framework for
    contributions, outlining the rights, obligations and
    responsibilities of investors and fund managers. By promoting
    transparency, mitigating risks and facilitating efficient
    operational processes, the contribution agreement not only
    safeguards investor interests but also contributes to regulatory
    compliance and overall confidence in the AIF, supporting a
    foundation of sound governance practices.

  • Issuance of drawdown notices: This serves as a transparent
    communication tool, keeping stakeholders informed about the
    fund’s capital requirements and aligning with principles of
    accountability. Subject to predefined conditions, the drawdown
    notice ensures consistency and fairness in fund operations,
    contributing to effective risk management.

  • Fund audit: The fund audit, conducted regularly, ensures
    financial transparency, accuracy and compliance with regulatory
    standards. This process not only verifies the fund’s financial
    health but also safeguards investor interests by detecting and
    addressing any discrepancies.

  • Fund accounting: Adhering to stringent fund accounting
    requirements necessitates a structured system for recording and
    reporting financial transactions. This not only supports the audit
    process but also aids in providing timely, accurate and accessible
    financial information to stakeholders.

7.4 What key risk management requirements apply to alternative
investment funds in your jurisdiction?

The AIF must establish and maintain a robust risk management
process, coupled with suitable internal controls, to ensure
effective governance and mitigate potential risks. According to the
AIF Regulations, AIFs must furnish information to SEBI as needed
for systemic risk assessment, which encompasses the identification,
analysis and mitigation of systemic risks.

SEBI is empowered to request information from an AIF at any
juncture:

  • concerning its activities as an AIF; or

  • for the evaluation of systemic risk or the prevention of
    fraud.

The AIF must furnish annual reports to investors within 180 days
of the year-end. These reports should encompass the following
information about material risks and their management:

  • concentration risk at the fund level;

  • foreign exchange risk at the fund level;

  • leverage risk at both fund and investee company levels;

  • realisation risk (ie, change in exit environment) at both fund
    and investee company levels;

  • strategy risk (ie, change in or divergence from business
    strategy) at the investee company level;

  • reputation risk at the investee company level; and

  • extra-financial risks, encompassing environmental, social and
    governance risks at both fund and investee company levels.

Furthermore, specific risk management requirements are imposed
on Category III AIFs utilising leverage. These include establishing
a comprehensive risk management framework with an independent risk
management function appropriate to the fund’s size, complexity
and risk profile. These AIFs are also mandated to maintain an
independent compliance function appropriate to these factors,
ensuring robust operations, infrastructure, adequate resources and
effective checks and balances.

According to the FM Regulations, an FME must establish a robust
risk management framework tailored to the complexity and risk
profile of the scheme.

8 Tax

8.1 How are alternative investment funds treated for tax
purposes in your jurisdiction?

Section 194 LBB of the Income Tax Act states that where income
is received from units of a specific investment fund, the person
responsible for making the payment must deduct income tax when
crediting the income to the relevant account or when making the
payment, whichever happens first. For residents, the deduction is
at a rate of 10%. For non-residents (individuals or foreign
companies), the deduction is based on the applicable tax rates.
However, where the recipient is a non-resident and the income is
not taxable under Indian tax laws, no deduction will be made.

Pursuant to Section 10 read with Section 115UB of the Income Tax
Act, a pass-through status is granted for tax purposes for Category
I and II alternative investment funds (AIFs) on any income other
than business income. This means that income earned (excluding
business profits or gains) is not taxed at the AIF level. Instead,
it is directly taxed at the hands of investors, as if the income
were received directly from the investments. This tax treatment
applies uniformly, irrespective of the AIF’s legal structure
(eg, private trusts, companies, limited liability partnerships
(LLPs)).

Unabsorbed losses (excluding business losses) of the AIF can be
allocated to investors, allowing them to offset these losses
against their individual incomes, provided that they have held AIF
units for at least 12 months. Distributions from Category I and II
AIFs are subject to a withholding tax of 10% for resident investors
and applicable rates for non-residents, considering any tax treaty
benefits.

However, business income of Category I and II AIFs is taxed at
the maximum marginal rate (MMR) of 30%, plus surcharge and
education cess, at the AIF level. Once this tax is paid, investors
are relieved of further tax liability on the same income.

On the other hand, Category III AIFs do not benefit from
statutory pass-through status. Typically structured as determinate
trusts, they may have identifiable beneficiaries with determined
beneficial interests. The trustee, in a representative capacity,
may fulfil the tax obligation on behalf of investors under Sections
160 to 162 of the Income Tax Act and must pay off the tax
liabilities of the beneficiaries. Nevertheless, trusts with
business income are subject to tax at the MMR. The income tax
authorities can recover tax from either the trustee or the
investors directly. Trustees, as representative assesses, retain
the right to recover taxes paid on behalf of investors.

8.2 How are alternative investment fund managers and advisers
treated for tax purposes in your jurisdiction?

An AIF fund manager is typically established as a company or an
LLP, subjecting management fees to income tax and goods and
services tax (GST) based on its legal status. Additionally, any
profits allocated to the fund manager from the AIF’s
investments are taxed according to the nature of the payment.

An LLP is subject to a fixed tax rate of 30% on its total
income. When the total income surpasses INR 10 million, an
additional surcharge of 12% is levied on the income tax amount.
Conversely, a private limited company incurs a tax of 25% when its
annual revenue is below INR 4 billion. However, if the
company’s annual revenue exceeds INR 4 billion, the tax rate
increases to 30%. Private limited companies also have the option to
choose between the standard rates of 22% (for existing companies)
and 15% (for new companies).

Notably, the 1 July 2021 ruling of the Custom, Excise and
Service Tax Appellate Tribunal in ICICI Econet Internet and
Technology Fund
(Service Tax Appeal 2900/2012) held that the
portion of a fund’s profits distributed to the asset manager as
‘carried interest’ constitutes a performance fee and is
thus liable to service tax (now replaced by GST). Previously
treated as capital gain income subject to a lower tax rate, this
ruling may prompt tax authorities to consider it as a performance
fee for taxation, pending resolution by the Supreme Court or a high
court.

Moreover, the International Financial Services Centre (IFSC) at
Gujarat International Finance Tec City has introduced a favourable
tax framework for AIFs established within the IFSC jurisdiction.
AIFs in the IFSC can enjoy a tax holiday, exempting 100% of their
business income for any 10 years during the first 15 years of
operations. Notably, fund managers operating from the IFSC are not
subject to GST on their earnings.

8.3 How are alternative investment fund investors treated for
tax purposes in your jurisdiction?

Please see question 8.1

8.4 What effect do international laws such as the US Foreign
Account Tax Compliance Act and international standards such as the
Common Reporting Standard have in your jurisdiction?

In the ever-expanding global markets, governments and financial
institutions are increasingly addressing issues related to tax
evasion and money laundering. Initiatives such as the US Foreign
Account Tax Compliance Act (FATCA) and the Common Reporting
Standard (CRS) represent concerted efforts to tackle these
challenges. FATCA is swiftly emerging as the global standard in the
ongoing endeavour to combat offshore tax evasion. The United States
has entered into intergovernmental agreements (IGAs) with over 113
jurisdictions and is actively engaged in discussions with numerous
other jurisdictions on this matter.

The Income Tax Rules, 1962 were amended by Notification 62/2015,
which introduced Rules 114F to 114H and Form 61B, establishing a
legal foundation for reporting financial institutions to uphold and
report information regarding reportable accounts.

The signing of the IGA between India and the United States on 9
July 2015 marked the implementation of FATCA, requiring Indian
financial institutions to disclose US reportable accounts to the
Indian income tax authorities for subsequent transmission of
financial data to US authorities annually.

Similarly, the CRS – an initiative of the G20 countries
and the Organisation for Economic Co-operation and Development for
the automatic exchange of financial account information among
participating nations – saw India join as a signatory on 3
June 2015. Essential amendments to income tax laws were enacted to
facilitate the execution of both the CRS and the IGA.

These initiatives not only have strengthened global measures to
fight financial crime but also support a fair and accountable
international financial system.

8.5 What preferred tax strategies are typically adopted in the
alternative investment fund context?

Please see question 8.1.

To read this Comparative Guide in full, please click here.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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