- The committee recommended the adoption of a VCC-like legal structure to conduct fund management activity in IFSCs
Background:
i.IFSCA constituted the Committee of Experts to explore the potential for allowing another legal structure i.e. VCC as an additional option through which asset managers could pool the investors’ funds.
ii.Conventional 3 types for pooling of funds in India:
- Limited Liability companies governed under the Companies Act, 2013
- Limited Liability Partnerships(LLP) under the LLP Act
- Trusts governed under the Indian Trusts Act, 1882
Committee’s Recommendation:
i.The committee examined the relevance and adaptability of the VCC for the IFSC in India or alternative structures to attract fund business in the IFSC.
ii.It also assessed the features of a VCC or its equivalent, in other jurisdictions such as the UK, Singapore, Ireland and Luxembourg.
iii.The Committee recommended providing the legal framework governing entities that undertake fund management with,
- Certainty and clarity to investors
- Effective segregation and ring-fencing of different pools of asset
- Ability to issue different classes of shares
- Alterations to the funds’ capital structure without regulatory approvals
- Freedom to choose the appropriate accounting standards applicable to funds with different characteristics
- Ability to wind up quickly
About Variable Capital Company (VCC):
i.VCC is a new corporate structure for investment funds that has a variable capital structure and provides flexibility in the issuance and redemption of its shares.
ii.It is also an alternative form of corporate vehicle that dispenses with some of the key limitations of companies and LLPs and provides for higher regulatory standards than those applicable to trusts.
iii.A VCC can be used for both open-ended and closed-ended alternative and traditional fund strategies.
Recent Related News:
On May 25, 2021, IFSCA, the regulator of GIFT- City (Gujarat International Finance Tec-City), constituted a 12-member expert committee on investment funds(IF) under the Chairmanship of Nilesh Shah, Managing Director of Kotak Mahindra Asset Management Co. Ltd., to recommend a roadmap to promote IF at IFSC.
About International Financial Services Centres Authority (IFSCA):
It is a statutory unified regulatory body under the Department of Economic Affairs, Ministry of Finance, Government of India.
Establishment – April 27, 2020, under IFSCA Act, 2019
Headquarters – GIFT City, Gandhinagar, Gujarat
Chairperson – Injeti Srinivas
