INDIA Law and Practice Contributed by: Tejesh Chitlangi, Sushreet Pattanayak, Pooja Mehta and Anita Jain, IC Universal Legal
Indian resident citizens, investments made by the Domestic AIF in equity instruments – equi - ties, compulsorily convertible preference shares or debentures, or warrants – of an Indian entity will be considered to be indirect foreign invest - ment for the investee Indian entity, and would be subject to the sectoral caps, pricing guide - lines and other conditions applicable for foreign investments set out under the NDI Rules. GIFT Funds GIFT does not have any specific requirements for non-local fund managers. 2.3.4 Regulatory Approval Process Please see 2.3.2 Requirements for Non-Local Service Providers . 2.3.5 Rules Concerning Pre-Marketing of Alternative Funds Domestic AIFs Domestic AIFs are only permitted to raise funds by way of private placement after receipt of approval from the SEBI. Managers cannot pub - licly advertise investment offers. Pre-marketing is not recognised as a concept under the AIF Regulations. In practice, pre-mar - keting is carried out in India by incorporating suitable disclaimers in pre-marketing pitchbooks and presentations so that it is distinguishable from any kind of (disallowed) public offer to sub - scribe to the units of a Domestic AIF. GIFT Funds Pre-marketing is not specifically recognised as a concept under the FM Regulations and/or other regulatory frameworks managed by the IFSCA. Pre-marketing at GIFT City is carried out by incorporating suitable disclaimers in pre- marketing pitchbooks and presentations so that
it is distinguishable from any kind of general offer to subscribe to the units of GIFT Funds. Please refer to the requirements for distributors in 2.3.6. Rules Concerning Marketing of Alter- native Funds . 2.3.6 Rules Concerning Marketing of Alternative Funds Domestic AIFs There is no specific regulatory framework for distributors, although the AIF Regulations gov - ern the commission payable to distributors for marketing of units of Domestic AIFs on a private placement basis, as follows: • AIFs must disclose the distribution/placement fee, if any applicable, to the investors; • for Category III Domestic AIFs, any distri - bution/placement fees must be charged to investors on an equal trail basis, with no upfront fees, and any fees paid must come solely from the management fee received; and • for Category I and II Domestic AIFs, up to one-third of the total distribution/placement fee may be paid to distributors upfront, with the remainder to be paid on an equal trail basis over the fund’s tenure. GIFT Funds Distributors who wish to set-up operations in GIFT City and engage with an issuer or a service provider to facilitate investment or subscription in GIFT Funds, India funds or funds of any foreign jurisdiction must register with the IFSCA under the CMI Regulations prior to the commencement of operations. Distributors (registered or other - wise) would need to ensure compliance with the Code of Conduct prescribed by the IFSCA to distribute GIFT Funds on an ongoing basis.
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