GIFT City draws big players with biz sops; banks, PEs register with IFSCA

The funds ecosystem in India’s maiden International Financial Services Centre (IFSC) in GIFT City is gaining significant momentum with more than 20 Alternative Investment Funds (AIFs) now registered with the IFSCA, the unified regulator for IFSCs in India.

These feature leading names in the venture funds, private equity and hedge funds ecosystem and include commitments to raising $4.6 billion from global investors, according to people in the know.

Additionally, 25 fund managers, 6-7 portfolio management services and 4-5 investment advisors have registered with the IFSCA. Another 25-30 players are in the advanced stages of applying to it for fund services.

Total banking transactions at IFSC are estimated to have crossed $140 billion and NDF transactions to have crossed $170 billion. Twenty foreign and Indian banks are now part of the IFSC ecosystem.

“GIFT IFSC is emerging as a preferred destination for India-centric Funds,” said Tapan Ray, MD & Group CEO, GIFT City.

While Category I and Category II Funds enjoy pass through status from a tax perspective, the government has introduced a special tax regime for Category III AIFs at par with other leading jurisdictions.

Further, investors in AIFs in GIFT IFSC are not required to obtain a Permanent Account Number of India (PAN), which provides ease of doing business for foreign investors.

“AIFs in GIFT IFSC are permitted to take leverage without any restrictions and diversification norms do not apply for investment in India. In addition to the regulatory and tax incentives, Funds located in GIFT IFSC enjoy lower cost of operations,” said Ray.

Last week, Aditya Birla Asset Management and Nippon India got the Portfolio Management Services (PMS) registration for carrying out global PMS activities from GIFT City. Kotak Mahindra Bank signed an MoU with GIFT SEZ to ease market access and cross border activities for fund management.

“Through our GIFT IFSC branch we will be able to provide investment management and advisory services to prospective and existing clients across sovereign wealth funds, family offices, global funds, institutional investors, and high net worth individuals, among others. We will also provide investment avenues to Indian investors for making investments in competitive products in IFSC and outside India,” said A Balasubramanian, MD & CEO, Aditya Birla Sun Life AMC.

Richard Pattle, co-founder and CEO, True Beacon, a Bangalore-based asset management company which was among the first ones to launch a category III AIF in GIFT City last year, said True Beacon was launched to take advantage of a very attractive tax regime and regulatory framework.

“The fund has now been operational for nine months and we have witnessed traction from across geographies from Sydney to San Francisco with an absolute outperformance of around 15 per cent. The fund has garnered interest from both NRIs and foreign investors, having outperformed many global indexes,” said Pattle.

After a slow start, the IFSC has ushered in a slew of reforms recently. These include tax holidays for fund management entities, exemption for non-residents from filing return of income in India and portfolio investments by funds enjoying the benefits of FPI taxation.

Reforms on the regulatory front include flexibility for co-investments, relaxation of investment diversification norms and permission for residents to be sponsors of funds registered as FPIs in IFSC.

Yashesh Ashar, partner, Bhuta Shah & Co., said the proposed introduction of the variable capital company structure would help funds set up in IFSC to enjoy flexibility comparable to any other competent jurisdictions.

“Moreover,” added Ashar, “the recent controversy around the applicability of the goods and services tax to performance fees of the fund manager also does not impact the AIFs set up in IFSCs as there exists complete exemption for fund management activities domiciled in IFSC under the GST.”

Despite the progress, hurdles remain. India has terminated bilateral investment agreements with about 58 countries which are yet to be negotiated and reviewed. There are limitations for Indian investors to participate in the funds set up in IFSC on account of the current restrictions under the India outbound regulations, specifically the liberalized remittance scheme and round tripping concerns. The response from many development financial institutions (DFIs) has remained timid to date.

Ashar believes the IFSCA needs to engage with overseas institutional investors, including DFIs, and educate them about the IFSC and address their concerns. “India as a jurisdiction, should be the first mover in adopting and pioneering regulations for new trends such as blockchain and crypto currency to add more credibility to the markets,” said Ashar.

According to Ray, the Liberalised Remittance Scheme (LRS) which was not available at GIFT IFSC, has now been permitted, albeit with certain riders. “It is a significant first step. However, GIFT IFSC is striving to ensure that LRS funds receive treatment at par with funds destined for other offshore jurisdictions,” he said.