Budget 2024: India to enable VCC structures like Singapore, Mauritius

Industry officials believe that the adoption of the VCC framework has helped Singapore become the hub for international fund management, and a similar move for India will be beneficial

The government will enable pooled private equity fund structures as variable capital companies (VCCs) — a structure more popular in financial hubs such as Singapore and Mauritius — in a bid to attract overseas investors.

Finance Minister Nirmala Sitharaman has said the government will seek legislative approval to allow VCCs.

Industry officials believe that the adoption of the VCC framework has helped Singapore become the hub for international fund management. A similar move by India will help India become an attractive fund management destination in the long run.

Industry players say the VCC structure offers several advantages to existing trust or partnership structures.

“Most funds in India are set up as trusts. VCCs can offer inherent benefits of a corporate structure like limited liability while granting flexibility in making distributions or redemption of investors’ interest which is ideal for funds,” said Vivaik Sharma, Partner-Investment Funds Practice, Cyril Amarchand Mangaldas.

“A VCC enables effective segregation and ring-fencing of different asset pools. Additionally, it allows for the issuance of various share classes. This structure significantly reduces compliance requirements compared to traditional corporate structures, providing greater flexibility for pooling funds and repatriating profits," added Rajesh Gandhi, Partner, Deloitte India.

More clarity is awaited on whether the VCC framework will be implemented only in the Gift City or also for the onshore markets.

For VCC to be effective onshore, regulatory change will be required to the alternative investment funds (AIF) regulations by the Securities and Exchange Board of India (Sebi).

Meanwhile, an expert panel set up by Gift City regulator IFSCA has already submitted its report, suggesting the VCC structure for AIFs, which currently use the trust or partnership structure.