International Financial Services Centres Authority (IFSCA), has notified a comprehensive regulatory framework for Investment Funds in the official gazette on April 19, 2022.
The salient features of the regulations includes:
(I) Registering the Fund Management Entity: A Fund Management Entity will be registered with IFSCA and will be able to manage different types of funds and schemes subject to meeting the eligibility criteria.
(II) Green Channel: Venture Capital Schemes or non-retail schemes soliciting money from accredited investors only shall qualify for a green channel i.e. the schemes filed can open for subscription by investors immediately upon filing with IFSCA. The requirements on scheme size, number of investors, permissible investments, etc. have been detailed in the regulations.
(III) Exchange Traded Funds (ETFs): Considering that ETFs offer a means to gain exposure to specific markets or asset classes at a low cost, registered fund managers in IFSC shall be able to launch not just Index based ETFs but also Active ETFs and Commodity based ETFs.
(IV) Stressed Assets: Realising the important role of IFSC in the Government initiative of addressing the issue of NPAs faced by banks, a framework has been prescribed for special situation funds to be launched by fund managers in IFSC.
(V) Environment Social Governance (ESG): Growing number of investors expect fund managers to make ESG issues integral to their investment strategies. With the intent of making IFSC a hub for a host of activities related to sustainable finance, disclosures have been proposed to be mandated at the entity level and scheme level.
(VI) Family Office: Globally, there is an increasing need for having a formal structure for managing and preserving the wealth of the High Networth Individuals (HNIs) and Ultra HNIs and their families. Accordingly, a framework to facilitate a self-managed investment fund of a family office has been provided in the regulations.
(VII) The regulations also provide support for various innovations in a controlled way:
a. Fund Lab: The fund managers may try new strategies in a controlled manner and build a track record for their fund.
b. Special purpose vehicle (SPV) as a co-investment structure and leverage: FME shall be permitted to create SPVs under the main scheme to enable undertaking co-investment or leverage along with the Fund/ scheme subject to certain conditions.
c. Retail participation in private markets: There has been a growing need to facilitate investors at large to invest in private markets. Accordingly, it is proposed to facilitate retail close ended schemes to invest in unlisted securities subject to certain conditions.
In addition to the above, the regulations detail the role of various entities, prescribe code of conduct, advertisement code, investment valuation norms and important governance requirements, including the substance requirement.