Regulatory Challenges for Alternative Investment Funds (AIFs)

  • In response to tighter restrictions affecting operations, the RBI has proposed that investments of more than 50% of Alternative Investment Funds (AIFs) units by a person residing outside of India be classified as indirect foreign investment.

Current Regulatory Landscape:

  • Regulatory Ambiguity: Recent regulatory remarks have generated uncertainty in the market, notably about Foreign Direct Investment (FDI) policies surrounding AIFs, causing investors to reassess fund deployment methods.
  • Changing posture: The regulatory posture has shifted, with modifications in 2015-16 permitting AIFs to receive foreign money automatically, encouraging onshore management, and motivating Indian fund managers to move to India.

Offshore Alternatives: 

  • Reasons for Offshoring: Offshore funds benefit from a more stable regulatory framework, however tax consequences necessitate careful structure.
  • Gujarat International Finance Tec-City (GIFT City) has developed as an appealing option for managers owing to regulatory stability, tax breaks, and closeness to India. 

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