The government, in order to attract greater foreign capital inflows through Alternative Investment Funds (AIFs), is considering changes to the foreign exchange regulations to make such investments easy.
Alternative Investment Funds (AIFs) are funds incorporated in India for the purpose of pooling in capital from Indian investors. In this year’s budget Arun Jaitley announced that foreign investors would also be allowed to invest in the AIFs.
AIFs were set up in 2012 by the SEBI as a new class of investment entity.
Finance Ministry is now planning 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 and to make the process easy.
The RBI which regulates Foreign Exchange Management, will make necessary changes in the regulations to ensure that the foreign investment in AIFs is in compliance with the existing FDI policy.
AIFs are regulated by SEBI and it includes private equity, venture capital and hedge funds.
AIFs has raised funds worth Rs 9,500 crore.
What is the hurdle?
According to 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.
Also, the FDI Policy does not permit foreign direct investment in any Trust other than by the FVCIs (Foreign Venture Capital Investors).
To remove these hurdles, the government seeks 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.