New Delhi: To attract greater foreign capitalinflows through Alternative Investment Funds (AIFs), the government is considering changes to the foreign exchange regulations to make such investments a seamless affair. AIFs were set up in 2012 by the capital markets regulator Sebi as a new class of investment entity. They are funds incorporated in India for the purpose of pooling in capital from Indian investors, while Finance Minister Arun Jaitley announced in this year's Budget that foreign investors would also be allowed to invest in the AIFs.
To make it a seamless process for the foreign investments in the AIFs, the Finance Ministry now plans to move the Cabinet to provide for an enabling provision in the Foreign Management (Permissible Capital Account Transactions) Regulations, 2000 to ensure that the foreign investment in AIF is compliant with the FDI policy.
Certain conditions would be put in place to ensure that the foreign investment in AIFs is in compliance with the extant FDI policy, sources said, while adding that the necessary changes would be made in these regulations by the banking sector regulator RBI. AIFs - which include private equity, venture capital and hedge funds are regulated by Sebi, but the Foreign Exchange Management regulations are governed by the RBI.
These funds have been consistently gaining traction since coming into play in late 2012 and there were 135 AIFs registered with Sebi as on March 31, 2015. Collectively, these AIFs had raised investment commitments totalling over Rs 22,600 crore till that date, while over Rs 9,500 crore worth funds have already been raised by them. Their total investment stood at Rs 7,350 crore. While Sebi has made provisions in its norms for AIFs to collect funds from the foreign investors, there is no enabling provision under the FDI policy or in the Foreign Exchange Management Act. Because of this, the Foreign Investment Promotion Board has been considering the foreign investment proposals in AIFs on a case-by-case basis.
=Under the RBI's Foreign Exchange Management (Permissible Capital Account Transactions) Regulations, 2000, only Sebi-registered foreign venture capital investors are allowed to invest in a Venture Capital Fund or in a Venture Capital Undertaking.
Besides, the FDI Policy does not permit foreign direct investment in any Trust other than by the FVCIs (Foreign Venture Capital Investors). To remove these anomalies, it has been proposed to seek the Cabinet's approval for the necessary changes in the existing norms to ensure that the foreign investment in AIFs is in compliance with the FDI policy and with the RBI norms.
