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RBI, Sebi recommend more curbs on off-shore investor base of AIFs

Business Standard  

Alternative investment funds (AIFs) where the majority of investors are non-resident or offshore could be treated as indirect foreign investments. Capital markets regulator Securities and Exchange Board of India (Sebi) and banking sector regulator the Reserve Bank of India (RBI) have recommended to the government to make the changes in the norms. This comes amid concerns over circumvention of regulations through use of the AIF structure. Post the changes, such investments will be subject to sectoral caps and foreign investment guidelines.At present, classification of investments made by an AIF is based on the domicile of ownership or control of the fund manager or sponsor of the AIF. If the fund is owned and controlled in India, it is not classified as indirect foreign investment.Sebi is in favour of the RBI’s recommendation that if more than 50% of the units of an AIF is held by or issued to a resident outside India, then all the investments made by such an AIF will be treated as indirect foreign investment for investee entities.