INDIA Law and Practice Contributed by: Tejesh Chitlangi, Sushreet Pattanayak, Pooja Mehta and Anita Jain, IC Universal Legal
1. Market Overview 1.1 State of the Market
lio Investment (FPI). If the fund expects to pool monies from resident Indians to primarily make Indian investments, a Domestic AIF would be the proposed structure. India-focused funds expecting participation from both overseas and domestic investors might consider a uni - fied structure (a Domestic AIF acting as a mas - ter fund and a feeder vehicle in GIFT or other similar jurisdiction) or a co-investment structure with a Domestic AIF and an overseas vehicle (in GIFT or another similar jurisdiction) operating in parallel. A key point to note is that, in a unified structure, as long as the ownership and control of the manager and sponsor of the Domestic AIF are vested with Indian resident citizens, the investments made by the Domestic AIF are not subject to any FDI limitations. GIFT Funds need not be limited to India-focused funds, and can be global funds raising capital from resident Indians or overseas investors. Domestically, retail funds are regulated as Mutu - al Funds, as discussed in 3. Fund Formation . GIFT Funds can also launch schemes for retail investors subject to the criteria specified under the FM Regulations. 2. Alternative Investment Funds 2.1 Fund Formation 2.1.1 Fund Structures Domestic AIFs and GIFT Funds Under the AIF Regulations, a Domestic AIF may be set up in the form of a trust, a company, a limited liability partnership (LLP) or a body cor - porate. Under the FM Regulations, a GIFT Fund intend - ing to operate as a “venture capital scheme” or a “restricted scheme” may be set up in the form
India offers the following frameworks for domes - tic and overseas fund managers looking to set up alternative investment funds. • Domestic investment funds regulated by the Securities and Exchange Board of India (SEBI), including privately placed alternative investment funds (Domestic AIFs) governed by the SEBI (Alternative Investment Funds) Regulations, 2012 (“AIF Regulations”) and retail mutual funds governed by the SEBI (Mutual Funds) Regulations, 1996 (“MF Regu - lations”). Under the AIF Regulations, Domes - tic AIFs generally take the form of trusts and must have a manager and a sponsor, with both regulated by the SEBI. • Investment funds (GIFT Funds) set up at International Financial Services Centre (IFSC) Gujarat International Finance Tec-City (GIFT or GIFT City). The International Financial Ser - vices Centres Authority (IFSCA) is the GIFT City regulator, and GIFT Funds are governed by the International Financial Services Cen - tres Authority (Fund Management) Regula - tions, 2022 (“FM Regulations”). At GIFT, the IFSCA regulates the Fund Management Entity (FME), which may launch schemes in accord - ance with the FM Regulations. Fund managers intending to set up India- focused funds would need to determine whether a Domestic AIF or a GIFT Fund would be the best choice based on criteria such as the inves - tors involved and the fund’s investment strategy. GIFT Funds are treated as non-resident for the purposes of India’s foreign exchange laws, so any exposure of GIFT Funds to India would be via available foreign investment route – eg, For - eign Direct Investment (FDI) and Foreign Portfo -
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